China Concepts Stocks’ Predicament – The Heat from the ‘DiDi Event’
- The so-called ‘DiDi event’ and new private tutoring rules may be the primary reason why SEC now requires China-based operating companies to disclose extra information.
- The golden age for Chinese companies being listed in the United States is over.
- The benefit of US market IPOs is decreasing for Chinese companies; in the following period, figures like the listing amount, valuation, and company quality are set to change drastically.
(Reading time: 6 minutes)
Here we present a timeline of the recent China Concepts Stocks-related events and analyze the inner reasons of the new SEC Statement and its impact.
On July 30, 2021, U.S. Exchange Commission Chair Gary Gensler published a statement saying that China-based operating companies should disclose extra information, including their legal structures and the risk of the Chinese government interfering in their businesses, to be listed in US markets. In the statement, the author also made investors aware of the fact that they will only own stocks of shell companies (Variable Interest Entities, VIEs) rather than operating companies in China.
Obviously, the statement was mainly caused by the DiDi event (check here) and the new private tutoring regulations starting from July 23, 2021. According to the new private tutoring rule, all institutions offering tutoring on the school curriculum will be registered as non-profit institutions, and the Chinese Government will not grant new licenses to such companies. The Nasdaq Golden Dragon China Index (HXC: NASDAQ) saw over 15% knocked off within two trading days after the announcement. Clearly, the SEC has no choice but to step up and protect US investors from further losses related to the country’s risk.
This article was first published on EqualOcean, an information service provider and investment research firm that focuses on China’s business landscape and thriving eco-system.
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