The New York Stock Exchange had planned to reverse its decision to delist three Chinese telecommunications companies.
The New York Stock Exchange is considering delisting three major Chinese telecommunications companies after Treasury Secretary Steven Mnuchin criticized his shocking decision to grant the companies a stay, three people familiar with the matter said.
The potential NYSE pivot follows an 18-hour whirlwind in which the exchange caught U.S. officials off guard, exasperation reaching the highest levels of the Trump administration. The back-and-forths have also created deep confusion in global financial markets over the policy that sparked the remarkable chain of events: an order signed by President Donald Trump in November that requires investors to offload Chinese companies deemed to be a threat to US national security.
Mnuchin entered the fray on Tuesday, calling NYSE Group Inc. chairman Stacey Cunningham to express his displeasure over the stock market’s decision to leave China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. who asked not to be named in a private chat. Chief of Staff Mark Meadows, National Security Advisor Robert O’Brien and National Economic Council Director Larry Kudlow also participated in the administration’s response.
China Mobile accelerated the decline in late transactions for the three companies’ U.S. certificates of deposit, falling 2.5% to $ 28.61 at 6 p.m. in New York. The final moves of the day reduced the trio’s collective market value by around $ 3.5 billion after everyone rallied around expectation of at least a temporary respite from Trump’s order.
Change of direction
The NYSE first announced it would take the companies off the list on New Years Eve, before changing course four days later. The NYSE’s original decision was to comply with the order, but the exchange reversed after questions arose as to whether the businesses were indeed banned, according to people familiar with the matter.
If and when the exchange receives confirmation from the government on what is prohibited, it will go ahead with delisting, the people said. The Treasury can also provide additional clarification through its Office of Foreign Assets Control, one person said.
NYSE and Treasury spokespersons declined to comment. The Treasury on Monday released a document that offered more information about the order hours before the exchange announced its decision to allow the companies to continue operating.
The possibility that companies will still be delisted means that financial markets are likely to face further disruption due to Trump’s crackdown on Chinese companies. China Mobile, China Telecom and China Unicom all rallied earlier on Tuesday, with investors concluding that the NYSE reprieve signaled tensions may ease between Washington and Beijing.
The order signed by Trump is still expected to go into effect on January 11 – nine days before he leaves. An official working on Joe Biden’s transition declined to say whether the president-elect would reverse it.
If Biden leaves the order in place, U.S. investment firms and pension funds would be required to sell their stakes in companies linked to the Chinese military by November 11. And if the United States determines that other companies have military ties in the future, American investors will give it 60 days from that decision to divest itself.
Since the onset of the coronavirus pandemic, the Trump administration has stepped up its attacks on China, imposing sanctions for human rights violations and the nationwide crackdown on Hong Kong. The United States has also sought to sever economic ties and deny Chinese companies access to American capital.
Supporters of the administration – including Secretary of State Michael Pompeo and White House trade adviser Peter Navarro – have warned investors for months that Chinese companies could be delisted from U.S. stock exchanges. Already in August, a senior State Department official, Keith Krach, wrote a letter warning universities to pull out of Chinese companies before possible write-offs.
One of their arguments was that Chinese companies do not adhere to internationally recognized accounting practices. The other argument, laid out in Trump’s November executive order, is that many Chinese companies have ties to the Chinese military and pose a threat to US national security.