Chinese companies are withdrawing
their listings from U.S.
stock exchanges. There is no real mystery: First, Chinese companies cannot (and
do not wish to) meet U.S.
accounting standards. They are largely state owned or directed. They usually
operate on the basis of informal agreements and must hide corruption. Second, U.S. markets
are driving down their share prices.
Their withdrawal from U.S.
stock markets is supported by the Chinese government which is providing loans
for that purpose.
Stock markets play the role of
“price discovery.” They let investors decide what companies are worth. For
example, the recent debacle of the Facebook IPO revealed that Facebook’s value
was less than expected.
Chinese companies are withdrawing
because stock-market investors have concluded that the companies of Chinese
state capitalism are worth less than what had generally been expected. Once
short sellers started investigating the goings-on in Chinese companies, their
share prices plummeted.
Chinese authorities must withdraw
their companies quickly from this price discovery process. If it continues, it
will show that Chinese companies are overvalued once their true operating
practices are known.
China cannot let its image of
success and growth be tarnished.
