NetEase has attributed its decision in part to the need for more funding, which it wants to use to expand its business. But it also became clear that he said the United States was becoming increasingly hostile to Chinese companies as regulators and lawmakers considered new rules that would lead to tighter controls. Some restrictions would even make it difficult for companies to publish publicly or continue trading in New York.
The entry into force of such rules “may lead to investor uncertainty for the issuers concerned, including us, the market price of our [US shares] it may be adversely affected and we may be deactivated if we are unable to “meet the requirements,” NetEase wrote in a listing on the Hong Kong Stock Exchange.
NetEase’s recognition is a sign of how much relations between the United States and China have deteriorated – and how much they are at risk for Chinese companies that are not developing a viable backup plan.
Other companies are also considering Hong Kong
“China’s technology giants see Hong Kong as a middle ground,” said Brock Silver, chief investment officer of Hong Kong-based Adamas Asset Management.
He added that the city was “under Chinese control, but still with access to US dollars.” Unlike mainland China, where there are strict restrictions on capital entering and leaving the country, Hong Kong allows capital to flow more openly. The city’s currency is also freely convertible.
NetEase is also not the last company to look at Hong Kong. About 37 Chinese companies are eligible to do so, according to data provider Refinitiv, based on their market cap, revenue and ability to comply.
Baidu and Trip.com declined to comment. But Baidu founder and chairman Robin recently suggested that his business could move to Hong Kong if necessary.
But Beijing has eased some of those restrictions in recent years as part of efforts to get Chinese companies to go home. The country is trying to improve its position as a major technological superpower, and the closer some of its most valuable companies are, the more influence the government can have on them.
“The political reckoning that drives Chinese US technology companies to seek secondary listings was initially Beijing’s desire to put those companies under its bureaucratic control,” Silver said. “But it develops in the light of the trade war and its subsequent separation.”
But the bill would force these companies to be repealed only if they could not be audited for three consecutive years, according to analysts at Goldman Sachs.
However, even the potential for tighter regulatory scrutiny “could accelerate their trend towards double listing in the EU [Hong Kong] market, “Goldman analysts wrote in a recent report.
The pressure also comes from the Trump administration. Secretary of State Mike Pompeo praised the Nasdaq on Thursday for proposing new compliance rules that could affect Chinese companies, adding that other exchanges should consider similar provisions.
And President Donald Trump has given authorities 60 days to recommend steps that regulators need to take to curb Chinese companies that do not comply with U.S. audit rules.
The pros and cons of Hong Kong
“We believe in [Hang Seng] over the next few years, it will undergo a similar change and become an index that mainly reflects the growth of new economic companies in China, “they wrote.
After all, Alibaba has been a major success story for the city. The company’s Hong Kong-listed shares have jumped 19% since they began trading last November.
“Other companies are following suit,” said Hong Hao, managing director and head of research at Bank of Communications International in Hong Kong. “It pays to have a plan B.”
However, Trump’s statement does not include specific sanctions related to the financial sector in Hong Kong. And pegging the Hong Kong dollar to the US dollar seems safe for now: City officials have convinced investors this week that they have enough reserves to keep the bulb, which keeps the city’s currency trading close and stable.