Beijing clamp on overseas listings won't benefit HK

Financial markets were last week rocked as Didi's app was removed from app stores in China, within days of its public debut in New York. Ordering the removal, the State Internet Information Office cited "serious violation on the use of personal information collection" under China's cybersecurity law.

In addition to the app's removal, registrations of new users was halted.

The news shocked the markets in China and America and there were several reports saying the ride-hailing giant went public despite repeated attempts by mainland regulators to stop the listing and this defiance had provoked a strong reaction from policy makers.

Shortly after Didi's app was taken off the shelf, the State Council issued guidelines to strictly crack down on illegal security activities in accordance with the law. It mentioned amendments to the regulations on strengthening confidentiality and archiving management in relation to overseas securities issuance and listing, as well as strengthening supervision over the China's stock markets.

The guidelines require all red-chip variable interest entities to get approval from the China Securities Regulatory Commission before going public in the United States or Hong Kong, as well as for other stocks seeking to be listed overseas or in Hong Kong, for reasons that may include risks over private information and capital outflows.

In fact, before the Didi saga, British newspapers had reported that Alibaba's (9988) two founding members - former chairman Jack Ma and current vice chairman Joseph Tsai - had put up abound US$35 billion of Alibaba shares as mortgage to UBS, Credit Suisse, Morgan Stanley, Goldman Sachs and other financial institutions, and borrowed huge sums of money.

Although Alibaba clarified that Ma did not have any loans backed by the company's shares, and the risk of Tsai's equity mortgage loan was also "controllable," the revelation would have inevitably fuelled Beijing's fears about the risks of listing Chinese shares overseas or in Hong Kong.

Beijing's concern possibly stems from two factors.

Firstly, relations between China and the United States and even other European states continue to be at low point, so if Chinese firms list overseas, there is the fear that US regulators might take advantage of listing hearings and force them to hand over sensitive information.

Second, the meteoric rise of Tencent, Alibaba and other tech giants have made their assets huge enough to compete with a country. So if these enterprises are listed overseas or in Hong Kong and they cash out their assets there, it could result in massive outflows from China.

Rumors about Ma and Tsai cashing out by using their shares as mortgage only add to these fears.

Therefore, as long as China's relations with America and Europe continue to be unstable, Beijing will keep tightening the noose on firms that want to go public overseas or in Hong Kong.

And while Hong Kong is part of China, the central government will remain alert because of the city's financial mechanism, which allows the free flow of capital.

So it does not necessarily mean that if Chinese firms can't go public in the US or elsewhere, Hong Kong will emerge as the beneficiary. At the same time, growth prospects for top tech stocks will be suppressed while shares of small and medium enterprises will get support. Thus, tech stocks with billions or trillions in market value may find it difficult to perform well while those below market value might have better prospects, which is worth noting.

Andrew Wong is chairman and CEO of Anli Securities