Breakingviews: Wall Street ignores China meddling at own peril

Washington and Beijing are taking turns hitting China’s U.S.-listed companies. Didi Global’s shares fell more than 20% on Tuesday after app stores in the People’s Republic had to delete it, following a Chinese regulator’s crackdown. Frothy markets may make investors overly optimistic. But it’s perilous to ignore both governments as they signal more curbs.

Investors are lapping up Chinese technology companies going public on U.S. exchanges. Last week, Didi’s shares rose 20% from its initial public offering price. Companies in the People’s Republic listing in the United States are already expected to rake in more than the $12 billion raised in 2020, which was almost triple the amount in 2019, according to Refinitiv.

Now China is flexing its muscle. Just days after Didi went public on the New York Stock Exchange last week, the Cyberspace Administration of China said it’s investigating the ride-hailing giant’s handling of user data. Then, Tuesday, Beijing said it would impose further restrictions on companies listing abroad.

Others are also caught in the net. Full Truck Alliance and online recruiting firm Kanzhun, both of which went public in the United States in June, also face cybersecurity probes. The fallout extended to other Chinese tech companies including e-commerce firm Alibaba and search engine Baidu, whose shares also fell on Tuesday.

Washington is unlikely to be outdone. Earlier this year, the U.S. government deemed dozens of Chinese companies as having links to the military of the People’s Republic, which resulted in delistings for China Mobile and other firms. In March, the U.S. Securities and Exchange Commission passed rules that would kick firms from the Middle Kingdom off U.S. exchanges if they fail to comply with auditing standards three years in a row.

Both are initiatives that began under former U.S. President Donald Trump’s administration, and other crackdowns are in the works. Congress is considering plans to punish Chinese companies based on human rights abuses.

The danger for investors is the two countries start to play off each other. U.S. authorities learn from China, and crackdown on U.S. companies that have both American and Chinese data, like Airbnb, say. Ditto China, who could retaliate in return by organizing a strike of large U.S. companies. Global companies with data know no borders, something that investors tend to like. With China and the U.S. authorities drawing clear lines, best they start to pay attention.

______________________________________________________________________________________