After the Chinese army’s Huawei and ByteDance’s TikTok, Alibaba becomes the next target in the war against the CCP according to the Whistleblower Movement led by Miles Guo.
As a multinational technology company specializing in e-commerce, retail, Internet, and technology, Alibaba plays a vital role in CCP’s global expansion and hegemony.
In a Getter post, Mile Guo said that all the colluders with the CCP will have a miserable ending. The next victims of the CCP will be Alibaba’s founder Ma Yun, Baidu’s founder Li Yanhong, Tencent’s founder Ma Huateng. They will share the same fate as the CCP spy couple Wu Zheng & Yang Lan, HNA’s Cheng Feng & Wang Jian, Tomorrow Group’s Xiao Yanhua, who were either imprisoned or murdered by the CCP.
IQIYI faces SEC probe for inflated earning
Chinese streaming service iQIYI, the Chinese equivalent of Netflix, is being investigated by the U.S. Securities and Exchange Commission (SEC).
China Daily’s article on stock-delisting in the US
Last week, US President’s Working Group on Financial Markets (PWG) recommended a plan to take tough action against US-listed Chinese companies to protect US investors. Despite the tough rhetoric from the White House, stock markets were largely unmoved for a very clear reason: If this recommendation becomes law, it would actually hurt the US financial industry because Wall Street has built a value chain around Chinese companies over the past two decades and the entire financial community benefits from it.
At the center of this PWG proposal is a recommendation for the Securities and Exchange Commission (SEC) to mandate that Chinese auditors share findings with the Public Company Accounting Oversight Board (PCAOB), a specialized audit regulator overseen by the United States government.
This recommendation is largely based on the “Holding Foreign Companies Accountable Act” (HFCAA) passed by the US Senate back in May, which seeks to ban Chinese companies from listing on the NYSE or the Nasdaq if their auditors fail to share findings with the PCAOB over three consecutive years. An identical bill was being considered by the House of Representatives, but has not yet proceeded to a vote.
Stock listings by Chinese companies is a lucrative business for Wall Street. Take for example the recent hot initial public offering of Li Auto Inc, which raised $1 billion and was listed on the Nasdaq on July 30.According to its prospectus filed with the SEC, Li Auto paid a total of $43 million to the underwriting syndicate, which includes Goldman Sachs, Morgan Stanley, UBS Securities and China International Capital Corp. Besides Wall Street investment banks, Nasdaq collects a small listing fee of $295,000.
The Financial Industry Regulatory Authority, as a self-regulatory body, collects a fee of $225,500 and legal firms engaged in this transaction pocketed $3.5 million in legal fees.
Finally, there is an accounting fee of $1.6 million mostly paid to the Chinese arm of Pricewaterhouse-Coopers, one of the “Big Four” accounting firms.
As an industry practice that is compliant with SEC requirements, Li Auto disclosed in its prospectus as a risk factor that,” auditors located in China are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC laws and specific directives issued by the China Securities Regulatory Commission”.
Li Auto is just one of the 233 Chinese public companies listed on US bourses. According to the US-China Commission, the total market capitalization of Chinese companies listed on US exchanges is $1.2 trillion, about 3 percent of the total US equity market capitalization, with a daily transaction volume of around $8 billion, or about 6 percent of daily turnover on the US market.
Investment banks collect hefty underwriting fees from these Chinese IPOs as well as trading commissions based on daily volume. Every time there is a major Chinese IPO in New York, NYSE will fly the Chinese national flag outside its iconic facade and Chinese entrepreneurs enjoy a lavish breakfast inside before ringing the opening bell. US exchanges therefore carry prestige for Chinese executives.
In the latest list of Fortune’s 2020 Global 500 biggest corporations, for the first time there are more Global 500 companies based in China, including Hong Kong, than in the US－124 compared with 121. However, the biggest Chinese mainland public companies are either dual listed in New York and Hong Kong－such as Alibaba Group－or listed exclusively in the domestic market like the famous liquor company Kweichow Moutai. US investors risk losing out from the second-largest economy with a booming private sector as well as large public companies that perform well and expand globally.
Political rhetoric does not change the fundamentals of these companies and the uncertainty of the HFCAA bill simply drives a wider wedge between stock prices and the underlying assets. These Chinese companies have large operations in China and it’s highly unlikely they’ll risk noncompliance with Chinese laws by providing audit results to US regulators. If they fail to comply, their share prices may drop as uncertainty starts to mount.
Controlling shareholders will be tempted to take these companies private at a much lower price and re-list them in Shanghai where the valuation could be higher than in New York. US investors in these companies will lose out in such privatization processes and become major victims of the HFCAA bill which, ironically, seeks to protect US investors. Since 2010, over 50 Chinese public companies have already been privatized and voluntarily delisted from US exchanges.
Wall Street executives made a rare public comment expressing reservations over this bill last month during a panel discussion hosted by the SEC.
John Tuttle, vice-chairman and chief commercial officer of NYSE Group, warned that the proposed legislation could backfire.
John Zecca, global chief legal and regulatory officer for the Nasdaq, said the legislation is a very blunt tool.
The cornerstone of the Sino-US relationship is an economic relationship, which has benefited both sides in the past four decades. The pragmatic practice of engagement and conversation promoted by former US Treasury secretary Henry Paulson a decade ago still resonates within the Chinese financial community today. The key is to build on shared interests while seeking to resolve differences.
On Aug 4, CSRC reached out with an updated proposal and provided evidence for Sino-US cooperation on this subject before. Now the ball is in the court of US regulators. At stake is only $1.2 trillion of market capitalization and thousands of professionals on Wall Street who devote time and energy in their jobs. There is a channel for bilateral conversation and there have been successful precedents with the CSRC, but unilateral legislation will only drive Chinese companies away and the damage to the US financial industry could be permanent.
CCP Media: Frailty drives US tech cold war agenda
In the early 2010s, an aspiring Chinese internet entrepreneur Zhang Yiming launched ByteDance while developing a video sharing platform. And after Douyin’s success in China, he began to internationalize the app.
To avoid conflict in national jurisdictions, Zhang had TikTok and its Chinese version Douyin run on separate servers. TikTok’s data collection is similar to that of major US social media platforms and apps, and certainly less intrusive than Facebook’s.
By the end of July, Douyin had more than 500 million active users, while the number of TikTok users had surpassed 1 billion worldwide－in barely four years. To manage the global concern, Zhang hired a Disney executive Kevin Mayer, to head TikTok and oversee its parent company ByteDance’s operations. Backed by the largest US and Japanese financial giants, ByteDance was valued at $75 billion－the most valuable startup worldwide.
Desperation to develop China-free internet
The US president has signed two executive orders banning US “transactions” with ByteDance and Tencent, owner of WeChat, a highly popular social media and trend-setting mobile payment app that has more than 1.5 billion active users. In turn, TikTok is moving ahead to sue the United States administration.
Afterwards, US Secretary of State Mike Pompeo offered his new vision for a “clean” internet, presumably in the name of “national security”. As US-based critics quickly warned, Pompeo’s vision is not a plan to “clean” but to techno-ethnically “cleanse”－to create a China-free internet. Similarly, his Indo-Pacific strategy aims at a China-free Asia.
In Kafka’s Trial, the key character is arrested “without having done anything wrong”. Among Chinese corporates, a similar series of nightmares began two years ago with the arrest of Meng Wanzhou, chief financial officer of Huawei, in Vancouver, Canada, on a provisional US extradition request.
The US administration has escalated Sino-US tensions to an unprecedented level, undermining four decades of strategic trust in barely four years. But the US’ tech war against China and pioneer innovators in Europe and Japan is of older origin.
Japan forced into secular stagnation
After the end of World War II, the US dominated advanced technology worldwide. But after postwar recovery, Western Europe became competitive. By the 1980s, Japan dominated consumer technology until it was compelled to sign the Plaza Accord that paved the way to its secular stagnation.
In conventional economics, developing economies are seen to trade primary commodities in exchange for developed countries’ manufactured technology. Such trading has not been characteristic of the US’ trade with China. Rather, the US trades primary commodities for Chinese technology. Even today, the “phase two” trade talks hinge on Beijing’s purchases of US soybeans.
In the name of “national security”, the US has a highly restrictive control system that restricts “dual-use technology” exports to China and many other countries. Behind the façade, non-US CEOs see it as a non-economic instrument to prolong strategic advantages the US no longer enjoys in commercial competition.
In the 21st century, no single country can control entire technology ecosystems. Yet that’s the US administration’s goal, due to Pentagon’s quest for “full-spectrum dominance”. In that view, the world, particularly the field of new technologies, is seen as a “battlespace”, which must be subject to US dominance alone.
Desperate bid to regain advantage in 5G era
Until recently, US enterprises lagged behind international competition in 5G mobile technology. Historically, the US dominated the analogue 1G through the 1980s. With deregulation and liberalization, it lost its edge. When globalization intensified in the digital 2G era by the early 1990s, the European Union introduced the GSM standard, which fueled the rise of Swedish Ericsson and Finnish Nokia. Along with Republic of Korea challengers, the European leadership prevailed through the 3G digital broadband in the 2000s.
For years, Microsoft had tried to bully and buy the hugely successful Nokia. In 2010, to the Finns’ surprise, a former Microsoft executive Stephen Elop, touted by Nokia chairman Jorma Ollila (who also chaired the Anglo-Dutch Shell), was made Nokia’s first non-Finnish director. Elop had a controversial record of restructuring stints. In four years, the “Trojan Horse” (as the Finns named him) bankrupted the 150-year old company, which was then sold cheaply to Microsoft.
In the 2010s, the still faster 4G saw the rise of Chinese innovators (Huawei, Alibaba, Tencent, Xiaomi) and Indian IT service giants (Tata, Infosys, Winpro). As rivalry began for the internet-pervasive 5G era, US companies no longer dominated the new platform, except for Apple’s iPhone (which was too costly for mass use).Accordingly, concerns grew in the White House and Pentagon.
The TikTok story in the US is the latest variant of an older story.
Cloned innovations, imposed dominance
In the past, Chinese multinationals, like their European and Japanese precursors, imitated technology leaders in the West. Today, they excel in innovation. Some projected the trend already in the 2000s.
US companies remain competitive internationally, but are no longer the only innovators. Half of the US’ research and development involves eroding defense contractors relying on cozy supplier networks. As a result, US companies increasingly imitate their foreign counterparts in commercial competition. That’s not a sign of American weakness, it’s a sign of the rise of new global competitors.
That’s why Microsoft would like to buy TikTok today just like it bought Nokia yesterday. Assets are cheaper when their value is down.
Imitation is the new rule of the game. Take, for instance, Facebook, which has been accused of, even charged for, anticompetitive behavior worldwide. As it has lost its innovation edge, it has cloned US rivals, such as SnapShot (Facebook’s Slingshot); Timehop (On This Day); Snapchat’s feature (Instagram Stories); Craigslist (Marketplace); Amazon’s Twitch (Facebook Gaming); Zoom and Houseparty (Messenger Rooms).
Now that Chinese companies and apps have joined global innovation leaders, the old rules of the game are changing, while Facebook’s strategy isn’t. That’s why it just launched Instagram Reels－a TikTok clone.
Washington’s quest for economic nationalism
Clones are seldom as attractive as the original. Imitation is not the real thing. That’s why the White House needs a “national security” argument for technologies that are no longer competitive globally－to provide legitimacy for full-spectrum dominance.
In that quest, the US administration is likely to target one major Chinese technology giant after another. At first, the effort is to restrict, marginalize, and cleanse these companies away from the US. Next, the administration may focus on these companies’ executives and international suppliers. What may start with courting may end with threats and sanctions. The ultimate goal is full dominance.
Effectively, the administration is thus fostering the rise of US-based “national champions”; that is, corporations that are ostensibly private but sustain the dominant position on the back of government policies.
Such policies promote economic nationalism at home and forced global eminence, which will further reinforce protectionism. They do not protect the US’ national security but will undermine it. They are non-economic instruments in a doomed effort to cleanse the world of Chinese technology innovators.