The Chinese Communist Party (CCP) seems determined to tamper with every aspect of American life, and the pocketbooks of U.S. investors are no exception.
The conflict between the United States’ system of Western liberal democracy and Chinese communism has focused primarily on areas of militarism, diplomacy and technology. Now, a string of recent moves by the CCP shows that American investors, including the middle class, are probably next up in the crosshairs of Xi Jinping and his allies.
First, China had to lure in U.S. capital in order to economically expand. Since China was “opened” by former President Richard Nixon, Western leaders have idealized that the CCP would liberalize as American and European money flowed into the country. Major Chinese corporations like Alibaba and NIO have produced big-time returns for American investors who got in at the right time, and that cash flow helped fuel the expansion of Chinese industry.
The Chinese crackdown on big tech shows what a coherent state does. By contrast the failure to govern in the West is probably our greatest slow motion crisis. It means we cannot do anything.
— Matt Stoller (@matthewstoller) July 28, 2021
Now, the CCP, led by Xi, is pushing back against foreign influence in its domestic economic markets. (RELATED: China Seethes At NBC For Showing ‘Incomplete’ Map Missing Taiwan During Olympic Opening Ceremony)
The most recent and perhaps most blatant example is with a company called Didi. Didi can be thought of as the Chinese version of Uber, a ride-hailing mobile app with millions of users across China.
Didi went public on the New York Stock Exchange on June 30. Its initial public offering (IPO) price shot up to $16.65, and $4.4 billion of mostly-American money was dumped into the firm.
Two days later, Chinese regulators dropped the hammer on Didi. The CCP cited “data privacy” concerns and ordered app marketplaces in China to ban new downloads of Didi. Authorities announced an investigation on national security grounds would begin.
Predictably, shares of Didi plummeted. Today, just over a month after the IPO, the price sits at $10.37, a drop of nearly 40%. It wasn’t clear at the time what the justification for the CCP intervention was, but according to The Wall Street Journal, China’s Cyberspace Administration is concerned about Chinese user data falling into foreign hands as a result of increased reporting requirements that come along with being listed on an American stock exchange.
Didi isn’t the only Chinese firm to be subjected to CCP crackdowns after going public on U.S. markets. Several other firms got the same treatment after Didi did for apparently the same reasons. (RELATED: China Sanctions Former Top Trump Official, Six Others In Response To Hong Kong Actions)
Didi’s IPO didn’t exactly go as planned. So just weeks after its splashy New York debut, it’s now considering undoing the whole thing by going private—a move it hopes will placate Beijing and compensate investors.@jingyanghk @raffaelehuang @JBSteinshttps://t.co/j42P3V9YAv
— Jonathan Cheng (@JChengWSJ) July 29, 2021
Alibaba, frequently regarded as the “Amazon of China,” was hit with a $2.8 billion anti-monopoly fine earlier this year by Chinese regulators. That came after the IPO for Ant Group, a subsidiary of Alibaba that was expected to raise tens of billions of dollars once it hit the market, was halted by the CCP last November after Alibaba founder Jack Ma criticized Chinese economic regulations during a public event.
Ma capitulated to CCP officials in the following months, agreeing to comply with a number of new regulations and turn Ant Group into a financial holdings firm.
Alibaba share prices have seen a decline of more than 20% in the last six months as the turmoil has unfolded. (RELATED: US-China Relations Hit ‘Stalemate’ Following Bilateral Meeting)
It would be a mistake to believe that these moves only affect big, institutional investors and the millionaires and billionaires they often serve. The American middle class is wrapped up in this saga as well, whether it’s aware of that fact or not.
MSCI, the world’s largest provider of stock indexes, is quadrupling its holdings of Chinese equities this year after pressure was put on it from the CCP. Around $14 trillion of U.S. capital is tied to MSCI indexes in some form or another, including thousands of mutual funds, pension funds and other retirement assets.
Americans investing in Chinese firms, knowingly or not, also have no recourse if something goes wrong. Chinese laws prevent domestic companies from being subject to foreign audits, so the Securities and Exchange Commission can only do so much if an Alibaba or a Didi decides to burn American investors.
Some of the folks pouring money into these Chinese firms are starting to wise up to the risk they’re undertaking. Stock prices for Chinese education companies have recently plummeted after the CCP introduced new requirements to “rectify” shareholder structures to forbid foreign influence on Chinese students.
Still, the U.S. economy is tied to the CCP, and the CCP now appears content to use that leverage to drain Americans of billions in order to protect its national security. With the United States failing to extract concessions from Xi on genocide of the Uyghur Muslims, the coverup of a possible lab-leak of COVID-19 and a crackdown on civil liberties in Hong Kong, it may be safe to assume that American investors won’t be protected from the CCP’s wrath anytime soon either.