An Alibaba sign outside the company’s office in Beijing. (Photo by GREG BAKER / AFP)
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China has issued a draft of rules for Chinese companies wishing to list overseas. It’s not providing one for companies such as Alibaba Group Holding and Baidu, whose American depositary receipts already trade on U.S. exchanges.
Ever since DiDi Global’s disastrous initial public offering in the U.S., markets have been wondering what’s next for Chinese companies listed on foreign exchanges. The concerns ranged from whether they’d continue to be able to use the loophole that allowed them to list in the first place to what China would require of them going forward.
China tried to alleviate those worries by issuing a draft of new rules, rules that would require companies to abide by Chinese regulations but would still allow them to use the “variable-interest entity” structure that allows them to get around rules against foreigners investing in Chinese businesses.
That would seem to be good news, particularly since most Chinese companies listed in the U.S., including Alibaba and Baidu, use that structure. Their ADRs rose in early trading Monday. Alibaba was up 1.2%, while Baidu was up 0.5%. But those gains disappeared later in the day. Both stocks ended Monday in the red.
While the rules might reduce some of the uncertainty on the Chinese side of things, U.S. regulators still appear to be taking a harder line on the companies listed in the U.S., including delisting some for ties to China’s army. Rules forcing Chinese companies to abide by U.S. accounting rules if they want to list on U.S. exchanges have also been under discussion.
The early Monday gains may have just been a matter of investors tiptoeing back into what hasn’t worked in 2021. For the year to date, with Alibaba down 49%, and Baidu off 33%, they certainly haven’t worked.
Maybe 2022 will offer something different than Monday’s close.
Write to Ben Levisohn at ben.levisohn@barrons.com
