Editorial China Should Continue To Improve The Governance Of Securities Market And Promote The Internationalization Of Capital Market

The U.S. trump Administration issued a proposal on August 6 that Chinese companies listed in the United States must comply with U.S. audit requirements, or they will be forced to delist. Chinese companies that are already listed on the New York Stock Exchange and the Nasdaq stock exchange must comply with this rule by 2022, or they will be delisted. The new auditor's proposal must share working papers with Chinese auditors.

This is not a sudden risk for China capital stocks. On May 20 this year, the US Senate passed the foreign company Accountability Act. The act will prohibit a listed company from listing on a U.S. securities exchange for three consecutive years to comply with the requirements of the U.S. Securities Exchange's audit committee. Earlier, the White House plans to cancel a memorandum signed in 2013 between U.S. and Chinese auditors, which allows China capital shares to be listed on U.S. stocks without audit.

In recent years, the threat of the trump administration to Chinese enterprises has spread from high-tech fields to finance and the Internet. The crackdown on related Chinese enterprises has long made China General stocks feel the risk is approaching. In the past few years, the privatization of China capital stock and the return of H-share and A-share listing have occurred. For example, Qihoo 360, Zhongxing micro, ZHANXUN, LanChi technology, Zhuhai Juli and other Chinese chip companies have withdrawn from the U.S.

China capital stock is mainly in China business and listed in the United States, its large-scale emergence occurred after 2000. Due to the rise of the Internet industry, overseas venture capital provides financing for the establishment of these emerging enterprises, but the high threshold of China's capital market does not provide them with exit channels and markets. These companies have lower IPO threshold to the U.S. market.

As of July 28, 2020, of the 245 listed Chinese stocks in the United States, 165 chose Nasdaq, 5 on the US stock exchange and 75 on the New York Stock Exchange. Compared with 20 years ago, China can provide IPO opportunities for start-ups, and the capital market can accept any return of China capital stocks. In April 2018, the Hong Kong Stock Exchange carried out reforms to allow three types of companies to be listed in Hong Kong. One is biotechnology companies with no income, one is companies with the same share but different rights, and the other is (Overseas) issuers with greater China as the focus (second listing). In addition, the Shanghai Stock Exchange also set up the science and Technology Innovation Board last year to actively provide a platform for the listing and financing of start-up technology enterprises.

A series of actions of the United States in the fields of science and technology, Internet and finance may inadvertently create a watershed: a no longer Dynamic United States, and a more dynamic China.

First of all, China's capital market is no longer the best choice. Therefore, there is no impact on the financing of Chinese companies. However, this will make the U.S. capital market lose its attraction to overseas investment, listing and other financial activities of enterprises from all over the world, because the rules of the United States are highly uncertain, and the tendency from legalization to politicization is becoming more and more serious. In addition, financial services such as investment banks, which are the most competitive in the United States, will also face losses.

Secondly, it is the active period of scientific and technological innovation in China, and a large number of dynamic private companies are emerging. According to the latest 2020 global Unicorn list released by Hurun Research Institute, 586 Unicorn enterprises are on the list, the United States ranks first in the world with 233 Unicorn enterprises, and China ranks second with 227 Unicorn enterprises. Most of the listed companies in the United States will lose their potential to be listed in the United States and China. In fact, the U.S. capital market and science and technology field has long been monopolized by the five major companies and gradually lost its innovation vitality.

Therefore, the new requirements of the United States for China capital stock will promote the integration of China's technological innovation wave and the construction of a dynamic capital market, so as to achieve the goal of win-win. Originally, China's capital market needed the return of China capital stocks and the retention of Unicorns to be listed locally. Now this process is accelerating.

Of course, the Chinese market, including Hong Kong, needs to strengthen market supervision, protect the interests of small and medium-sized investors, adhere to the rule of law and marketization, improve the governance of the securities market, and finally realize the internationalization of the capital market, so as to attract more enterprises from home and other countries to go public with an open and transparent attitude.