The decadeslong, trillion-dollar love affair between China and Wall Street is coming to an end.
Didi Chuxing, a $39 billion company that is China’s answer to Uber, said Friday that it would delist its shares from the New York Stock Exchange. Just six months ago, Didi was a Wall Street darling, raising billions of dollars from U.S. pension funds and international investors in a splashy New York initial public offering.
Those sorts of deals once fueled a three-decade relationship that helped reshape the global political and financial landscape. China generated heaps of money for Wall Street by hiring banks to manage deals like IPOs. In return, Wall Street gave China access to the halls of global finance and political power, especially when it came to introductions in Washington.
Didi’s abrupt decision to leave brings home a stark truth for Wall Street: China doesn’t need it anymore. The world’s No. 2 economy has plenty of its own money and few problems attracting more from elsewhere. China’s friends on Wall Street have lost their sway in Washington at a time when mistrust of Beijing’s intentions is running high. And China’s leaders would rather keep tight control of its companies than open them up to investors on U.S. markets.
Now Wall Street has become the latest area in which leaders on both sides are trying to weaken the extensive and complicated ties between the world’s two largest economies. And just as the alliance of China and Wall Street helped shape business in the past, the way the two sides disentangle those ties could reshape its future.
“It is mutual decoupling, but it is also a contest to set the rules by which international intercourse takes place,” said Lester Ross, a partner in the Beijing office of the WilmerHale law firm.
Beijing has been asserting greater control over its private companies, particularly those like Didi, which has extensive data on hundreds of millions of Chinese taxi hailers and ride sharers. It seeks a private sector more in line with the Communist Party’s growing focus on spreading wealth and meeting its policy goals — aims that Wall Street investors most likely can’t help with.
The U.S. government, which sees China as the greatest economic, political and military rival, has been putting pressure of its own on Chinese ties. It has forced some state-controlled Chinese companies in delist their U.S. shares. On Thursday, the U.S. Securities and Exchange Commission adopted rules that would require reluctant Chinese companies listed in the United States to further open their books to American accounting firms or get kicked off its stock exchanges.
The attraction between China and Wall Street is increasingly one-sided. Wall Street banks like Goldman Sachs and JPMorgan Chase are hiring and investing heavily in building out their businesses in mainland China. Chinese regulators have loosened limits on what foreign banks can do inside the country, but the firms will still be subject to Chinese laws and mores.
China also has Hong Kong, which remains a financial capital despite Beijing’s tightening its grip over the government and daily life. Didi on Friday paved the way for allowing investors who bought shares on the New York exchange to swap them for those that will someday soon be traded in Hong Kong.
Didi’s move will put a focus on Chinese companies that still trade in the United States, and they represent a lot of money. A congressional commission estimated this year that nearly 250 Chinese companies had a total of $2.1 trillion in shares trading on U.S. exchanges.
The most prominent is Alibaba, the e-commerce giant that once conducted the biggest IPO in the world when it sold shares in New York in 2014. The company didn’t immediately respond to a request for comment.
Chinese regulators were said to have been looking at ways to limit Chinese listings in the United States. This week, they denied a report that they would close a legal loophole that Chinese companies like Didi and Alibaba have long used to list overseas while keeping corporate control in the mainland. But even without more regulatory action, few Chinese companies have listed in the United States since Didi’s IPO and a subsequent regulatory crackdown on the company by Beijing.
There was a time when Wall Street’s bankers could lobby Washington on China’s behalf and get results. In the late 1990s, as China was trying to lower trade barriers, Zhu Rongji, then its premier, flew to New York to meet with finance and business leaders. The heads of Goldman Sachs and American International Group later worked to persuade President Bill Clinton to strike a deal to help China join the World Trade Organization in 2001.
Wall Street was also able to intervene when Presidents George W. Bush and Barack Obama considered labeling China a currency manipulator, urging lawmakers to reconsider taking official action against Beijing’s attempts to weaken its currency in order to boost its importers.
These days, calls from Wall Street executives like Blackstone’s Stephen A. Schwarzman, who has raised over $500 million for a scholarship program at China’s prestigious Tsinghua University, have increasingly fallen on deaf ears in Washington. In 2019, the Trump administration labeled China a currency manipulator. The designation was later formally removed, but the sentiment of getting tough on China has remained.
As the U.S.-Chinese relationship cools, more companies like Didi will get caught in the middle.
“It’s bad for business to be caught between two superpowers flexing their economic and regulatory powers,” said Paul Leder, a lawyer at Miller & Chevalier and a former director of the SEC’s Office of International Affairs.
The delisting is likely to increase investor concerns about what seems to be a growing hostility by Chinese officials toward domestic companies that list shares on overseas exchanges.
For Didi, once hailed as an innovator and disrupter in China’s staid transportation sector, it has been a fast fall from grace. In 2016, it was considered the pride of China’s spunky startup scene when it vanquished its U.S. rival, Uber, and bought that company’s Chinese operations. Promises to use its banks of data to unsnarl traffic and develop driverless car technologies made its executives icons.
When it listed over the summer in New York, Didi appeared to be following a long list of Chinese success stories that saw getting into Wall Street as an ultimate validation of a company’s business achievements.
Beijing’s sudden clampdown on Didi jolted the company’s new Wall Street shareholders. Since its blockbuster IPO, Didi’s share price has roughly halved in value.
In a rebuke to Didi, Chinese regulators followed up its megabucks listing with a series of regulatory slaps. Worried that the listing meant Didi might transfer sensitive data on Chinese riders to the United States, regulators forced the company to halt registering new users two days after the IPO as they began a cybersecurity review of its practices.
Shortly thereafter, officials ordered a halt to downloads of Didi’s main, consumer-facing application, before broadening the block to 25 more of the company’s apps, including its carpooling app, its finance app and its app for corporate customers.
Investors can still go to Hong Kong if they want to invest in Didi or other Chinese stocks, said David Webb, a former banker and longtime investor in Hong Kong. But broadly, China wants its companies to be only a short distance away.
“It is all part of a mainland government plan to ‘bring them home’ and disengage from U.S. regulation,” he said.
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