American investors in Didi and Full Truck Alliance lose over 20% of their investment as Wall Street firms like Goldman Sachs collect their fees selling companies surviving on the whims of China’s Communist Party.
Last Wednesday, Wall Street helped Chinese rideshare company Didi raise billions from American investors in a massive Initial Public Offering (IPO). Didi had originally grown out of its acquisition of Uber in China, after the latter was forced to leave due to stifling regulations.
The Chinese ride-sharing tech company raised $4.4 billion, giving the company a total market value of $68 billion. At first, things looked promising for Didi and the Americans who invested billions in it. CNBC host Jim Cramer advised them to “buy as much as you can,” but didn’t take seriously his own warning that Didi would only do well if it could stay clear of CCP dramas.
The drama began a week later when Chinese regulators spontaneously removed Didi from app stores for failing to comply with Chinese cybersecurity regulations worried about private user data.
In the fallout, Didi’s share price tanked, and investors lost $15 billion almost overnight. Lawsuits have been filed, but there’s only so much that can be done. Chinese companies only have as much control over their operations as the CCP allows them to have.
After multiple back-to-back China IPOs gone wrong, lawmakers in Washington are asking the question: Why was Didi even allowed to IPO in the U.S. in the first place?
China’s security market is a new frontier for Wall Street, and not one they want to lose. It’s a money-making machine for the biggest players, all now setting up shop after 12 years of waiting and hoping to tap China’s budding capital markets.
Despite the $13 billion loss to U.S. investors, Goldman Sachs, Morgan Stanley, and others made $88.7 million in fees. For Wall Street, Chinese IPOs are a source of tremendous profit, even if the companies turn out to be fraudulent.
The Didi IPO is just the latest in what seems to be an intentional business pattern for Chinese companies under the glaring thumb of the CCP.
Earlier this year, Luckin Coffee, the Chinese coffee giant, filed for bankruptcy protection from investors in the U.S. after announcing that it had fabricated sales data. As a result, the stock price plunged 75 percent overnight.
Just as Didi was tanking, Chinese regulators also pulled down apps run by tech companies Full Truck Alliance and Kanzhun in order to conduct cybersecurity investigations, causing their stock prices to plummet over 20%. This happened to Full Truck Alliance less than a month after making its IPO in the U.S.
Such fraudulent business practices, stemming from the CCP’s authoritarian control, exposes investors to material, unmitigated risk. Meanwhile, Wall Street continues to profit from China’s fraud.
After so many costly coincidences, it is time to consider whether China is intentionally botching IPOs and listings on U.S. exchanges in order to bolster their own exchanges in Shanghai and Hong Kong. For their part, Wall Street firms are more than willing to help Chinese companies raise money from U.S. capital markets, even if it means average retail investors lose their investment.
Much of this is thanks to a 2013 memorandum put in place by former President Obama’s Securities and Exchange Commission (SEC), which effectively makes it so that Chinese companies do not have to comply with U.S. financial laws for transparency and accountability.
Congress passed a new law last year that requires Chinese companies to comply with these rules within three years. If they don’t, they will be delisted from U.S. exchanges.
However, three years is much too long to continue to allow Chinese companies to ignore U.S. financial laws. The Senate recently passed Senator John Kennedy’s (R-LA) bill to reduce that period to just two years, but the House has not taken any action.
If the trend continues, Wall Street will help more than 60 Chinese companies IPO in the U.S. this year alone. It is time for Washington to put an end to China’s fraud on our markets and hold Wall Street accountable for facilitating this farce.
