Chinese operators struck off New York exchange

In the latest US blow to the China tech sector, the three state-owned operators have been struck off the New York Stock Exchange.

The exchange announced on December 31 that the three stocks would cease trading by January 11.

This follows an executive order on November 12 which declared that China was "exploiting United States capital" to resource its military and intelligence capabilities.

Share exchange: Shareholders will be able to swap NYSE holdings for those listed in Hong Kong.  (Source: David Vives on Pixabay)
Share exchange: Shareholders will be able to swap NYSE holdings for those listed in Hong Kong.
(Source: David Vives on Pixabay)

The direct impact of the ban is mostly symbolic, however. The three American Depository Share (ADS) stocks are thinly traded.

China Mobile said that its NYSE listing accounted for 2% of its total stock and 8% of the equity not owned by its parent.

The average daily trading volume of China Mobile's NYSE stock last year was equivalent to 22% of all trades in its shares, the company said. For China Unicom and China Telecom the volume was 9% and 11% respectively.

Investors will be able swap their ADS for stocks on the Hong Kong exchange, although that didn't prevent a minor sell-off of China Mobile and China Telecom in Hong Kong trading on Monday, with Mobile down 0.79% and Telecom 0.04%.

On the list

President Trump's executive order did not specify direct links between operators and the military, but said that China's "military-civil fusion strategy" compels civilian firms to support military and intelligence activities.

The US Defense Department has listed 31 "communist Chinese military companies" that it says aid China's military objectives.

Aside from Huawei, the operators and a dozen other state-owned entities, the list includes manufacturer Panda Electronics, cloud firm Inspur and video surveillance company Hikvision.

China's Ministry of Commerce attacked the delistings as an "abuse of national security" and "inconsistent with market rules and market logic."

However, further stock exchange bans are on the way.

The stocks of 217 Chinese companies are now bought and sold on US exchanges. China Mobile has been listed on the NYSE since 1997, China Unicom since 2002 and China Telecom since 2003.

Separately, congress has just passed a law that will delist Chinese firms that do not conform to US auditing standards. Currently, China does not allow US regulators access to the audit documents of US-listed companies.

Reds under the bed

The new law also tackles the problem of undisclosed Communist Party influence in listed Chinese firms.

Want to know more about security? Check out our dedicated security channel here on Light Reading.

In state enterprises, the party appoints all senior posts, sets the broad directions and has a veto over all decisions, yet is never named in a prospectus.

The Holding Foreign Companies Accountable Act will require companies to name party officials on their boards and disclose whether their articles of incorporation contains any charter of the CCP, Reuters reports.

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— Robert Clark, contributing editor, special to Light Reading

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