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December 3, 2021

The era of big Chinese companies heading to the United States to raise money may have just come to an end. China's Didi announced Friday that it will "immediately" start the process of delisting from the New York Stock Exchange and pivot to Hong Kong.

Coming just months after the ride-hailing giant's Wall Street debut, the news sends a clear signal to investors as tensions between Washington and Beijing generate uncertainty.
"Didi's repatriation to [Hong Kong] is a significantly worrying indicator for the larger US-Sino economic relationship," Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong, told me. "Beijing essentially forced Didi's hand."

Shortly after its $4.4 billion initial public offering in the United States in late June, Chinese regulators banned Didi from app stores in China, saying it broke data privacy laws and posed cybersecurity risks. Its share price collapsed. The decision to target Didi was widely seen as punishment for its decision to go public overseas, and the company became a prime example of China's efforts to curb the power of Big Tech firms.

Will other Chinese companies experience the same?

Didi's situation is set to spark a broader reassessment of Chinese companies that have listed shares abroad — including Alibaba, Pinduoduo, Baidu, JD.com, Nio (NIO) and Tencent Music (TME). Will they suffer the same fate?

"Didi's repatriation looks likely to be the start of a trend, and the market should expect that others will follow," Silvers said. "Equity investors may not wait for the other shoe to drop." Pinduoduo (PDD) shares are down 4% in premarket trading, while Baidu (BIDU) is off more than 1%. Alibaba (BABA) shares listed in New York, which have already plunged 48% this year, are slightly lower. Didi's stock, which has fallen 44% below its IPO price, is down 3% premarket.

Investors in such stocks have been on edge for months. The S&P/BNY Mellon China Select ADR Index, which tracks top US-listed Chinese firms, has plunged 40% this year. Two developments this week further underscore the fact that financial ties between the United States and China are fraying.

On Thursday, the US Securities and Exchange Commission finalized rules that would allow it to delist foreign firms that refuse to open their books to the country's regulators. China has for years rejected US audits of its firms, citing national security concerns.

And Bloomberg reported that Beijing is set to ban the loophole that allowed companies like Alibaba and Didi to list in New York in the first place. "Chinese founders previously looked to [New York] for a number of reasons, including looser listing standards, often higher multiples and a domicile beyond Beijing's financial [and] regulatory grasp," Silvers said.

"That calculus has rapidly changed, and today's companies — especially established market leaders or those in certain tech sectors — will likely face increasing pressure to list on China-controlled exchanges."