Wall Street dodged the financial carnage of the US-China trade war, but it could be among the biggest losers from the latest flashpoint between the two nations – and it is struggling to mount a defence.
Financial companies’ angst is focused on legislation pending in Washington that threatens to kick Chinese companies, including Alibaba and Baidu, out of American stock markets. The crackdown, which US politicians say will protect investors from fraud and fortify national security, would affect much of the financial industry.
The New York Stock Exchange and Nasdaq are worried about losing listing fees. Big asset managers are worried about the effect on emerging market indexes and exchange traded funds that they sell to investors. And investment banks that take companies public are concerned that it might be too late to mobilise against the bill, which gained significant headway last month when the US Senate approved it unanimously.
Tensions are very high … It's sort of like a perfect storm for legislation like this to be passed.
With perhaps billions of dollars in revenue at stake, it is surprising how tight-lipped Wall Street has been about the push to impose the tougher restrictions.
Financial executives say their hesitancy to speak out stems from how widespread the hostility towards Beijing has become on Capitol Hill, particularly with the backdrop of a bitter presidential election.
Lobbying against the bill arguably means siding with Chinese companies over US investors, a position that would anger Republicans and Democrats. But if the legislation clears the House and is signed by President Donald Trump, US financial companies might be among the businesses that bear the brunt of any reprisals from Beijing. Companies also fear an escalating tit for tat between the countries that could bring even costlier policy changes.
“Tensions are very high,” says Shaswat Das, a lawyer at King & Spalding in Washington, who previously worked for the Public Company Accounting Oversight Board – the regulator that’s at the heart of the dispute over Chinese companies listed on American exchanges.
“It’s sort of like a perfect storm for legislation like this to be passed.”
The strains are especially dicey for companies such as Goldman Sachs, JP Morgan Chase and BlackRock that have charged ahead with plans to expand their businesses in China. They have been lured by the chance to make inroads into the nation’s $47 trillion (Dh172.63tn) financial industry, which serves the fastest-growing cohort of millionaires on earth. China this year allowed Wall Street to apply for full ownership of its local ventures, a major step in opening up to foreign companies.
This overview of how stock exchanges, banks and mutual-fund companies are grappling with rising friction between the world’s two biggest economies is based on interviews with more than 15 executives, lawyers and government officials.
The Senate bill, which took the Securities and Exchange Commission and even some members of Congress by surprise when it passed without debate on May 20, would prohibit Chinese companies from trading in the US if PCAOB inspectors aren’t allowed to review their auditors’ work for three consecutive years. The businesses would also have to certify that they are not controlled by China’s Communist Party.
China has long refused to let the audit regulator scrutinise its accounting companies. Despite not adhering to that regulation, there are more than 200 Chinese corporations that have been allowed to trade on US exchanges, according to the PCAOB. Their market capitalisation is roughly $1.8tn, with Alibaba making up about one third of the total.
Luckin Coffee’s recent disclosure that it is being investigated for accounting irregularities in the US and China has exacerbated concerns about potential misconduct. Since reaching a high of $50 a share in January, the fast-growing Chinese chain has fallen more than 90 per cent in Nasdaq trading, a plunge that has erased about $11.5 billion in market value.
“It’s asinine that we’re giving Chinese companies the opportunity to exploit hard-working Americans,” says Senator John Kennedy, a Louisiana Republican who is sponsoring the bill with Maryland Democrat Chris Van Hollen.
Mr Kennedy, known for being outspoken, has been quick to attack those he thinks are undermining his effort. After learning that SEC officials had discussed revisions to his legislation with House politicians, Mr Kennedy accused the agency of lobbying against it in a Fox News interview.
While the agency denied the charge, it had given House staff members a long list of suggested changes to the Senate bill. The SEC ultimately offered a much narrower set of recommendations that are mainly intended to limit the legislation’s effect on US corporate subsidiaries operating in China.
Still, the episode served as a warning to Wall Street about the backlash it would probably face for aggressively opposing the legislation.
SEC chairman Jay Clayton supports the Senate bill and believes the status quo of Chinese companies listing on American exchanges without adhering to US regulations is unacceptable, Chandler Costello, an agency spokeswoman, said. Before joining the SEC, Mr Clayton was a partner at law firm Sullivan & Cromwell, where he worked on Alibaba’s 2014 US IPO.
The delisting measure appears to have momentum, and is expected to pass the House, lobbyists said. Financial Services Committee chairwoman Maxine Waters has told people that she will not impede its progress as long as the Senate agrees to pass a separate bill that requires public companies to report annually on the ethnic, racial and gender diversity of top executives and board members.
In a Fox Business interview last month, Mr Trump indicated that he is frustrated that Chinese businesses are not following US accounting rules. He, however, said the companies might just move their stock listings to London or Hong Kong if the US took a tougher stance on compliance. Mr Trump subsequently ordered the Treasury Department, SEC and other agencies to study the issue, and submit recommendations to him by early August.
NYSE and Nasdaq would be among the hardest hit if the US kicks out Chinese businesses because they would lose millions of dollars in fees the companies pay to be listed on their exchanges. Their lobbyists have succeeded in killing similar legislative efforts in the past.
This time, however, it is clear the ground has shifted. Lawmakers have not been receptive to suggestions that the legislation should only affect companies seeking new stock listings, which would insulate businesses already trading in the US.
And the exchanges, according to sources, have not been able to persuade the US Chamber of Commerce to weigh in against the bill. The nation’s biggest business lobby believes there is little upside to opposing it.
The NYSE said that if the bill passes, the exchange hopes regulators enforce the legislation in a way that “delivers investor protection based on transparency” and ensures it’s not just “a privileged few” who can buy shares of Chinese companies. Nasdaq declined to comment.
Tom Quaadman, executive vice president of the chamber’s Centre for Capital Markets Competitiveness, said “it is important for the US and China to come to agreement on these issues”.
For Wall Street, there is also a view that they should save their ammunition for more important fights – and there are many more probably coming.
One piece of legislation that is especially troubling would punish financial companies for doing business with Chinese officials who are seeking to impose a sweeping security law on Hong Kong.
The bill, introduced last month by Mr Van Hollen and Republican Pennsylvania senator Pat Toomey, responds to criticism that China’s proposed law would curb freedoms in Asia’s financial hub. Bank lobbyists privately say that they fear the legislation will pass easily if it ever reaches the Senate floor.
Innotech Profile
Date started: 2013
Founder/CEO: Othman Al Mandhari
Based: Muscat, Oman
Sector: Additive manufacturing, 3D printing technologies
Size: 15 full-time employees
Stage: Seed stage and seeking Series A round of financing
Investors: Oman Technology Fund from 2017 to 2019, exited through an agreement with a new investor to secure new funding that it under negotiation right now.
Countdown to Zero exhibition will show how disease can be beaten
Countdown to Zero: Defeating Disease, an international multimedia exhibition created by the American Museum of National History in collaboration with The Carter Center, will open in Abu Dhabi a month before Reaching the Last Mile.
Opening on October 15 and running until November 15, the free exhibition opens at The Galleria mall on Al Maryah Island, and has already been seen at the Jimmy Carter Presidential Library and Museum in Atlanta, the American Museum of Natural History in New York, and the London School of Hygiene and Tropical Medicine.
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
The alternatives
• Founded in 2014, Telr is a payment aggregator and gateway with an office in Silicon Oasis. It’s e-commerce entry plan costs Dh349 monthly (plus VAT). QR codes direct customers to an online payment page and merchants can generate payments through messaging apps.
• Business Bay’s Pallapay claims 40,000-plus active merchants who can invoice customers and receive payment by card. Fees range from 1.99 per cent plus Dh1 per transaction depending on payment method and location, such as online or via UAE mobile.
• Tap started in May 2013 in Kuwait, allowing Middle East businesses to bill, accept, receive and make payments online “easier, faster and smoother” via goSell and goCollect. It supports more than 10,000 merchants. Monthly fees range from US$65-100, plus card charges of 2.75-3.75 per cent and Dh1.2 per sale.
• 2checkout’s “all-in-one payment gateway and merchant account” accepts payments in 200-plus markets for 2.4-3.9 per cent, plus a Dh1.2-Dh1.8 currency conversion charge. The US provider processes online shop and mobile transactions and has 17,000-plus active digital commerce users.
• PayPal is probably the best-known online goods payment method - usually used for eBay purchases - but can be used to receive funds, providing everyone’s signed up. Costs from 2.9 per cent plus Dh1.2 per transaction.
UAE currency: the story behind the money in your pockets
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
KILLING OF QASSEM SULEIMANI
Killing of Qassem Suleimani
Pharaoh's curse
British aristocrat Lord Carnarvon, who funded the expedition to find the Tutankhamun tomb, died in a Cairo hotel four months after the crypt was opened.
He had been in poor health for many years after a car crash, and a mosquito bite made worse by a shaving cut led to blood poisoning and pneumonia.
Reports at the time said Lord Carnarvon suffered from “pain as the inflammation affected the nasal passages and eyes”.
Decades later, scientists contended he had died of aspergillosis after inhaling spores of the fungus aspergillus in the tomb, which can lie dormant for months. The fact several others who entered were also found dead withiin a short time led to the myth of the curse.
The specs
Engine: 3.0-litre 6-cyl turbo
Power: 435hp at 5,900rpm
Torque: 520Nm at 1,800-5,500rpm
Transmission: 9-speed auto
Price: from Dh498,542
On sale: now
Yuki Means Happiness
Alison Jean Lester
John Murray
Killing of Qassem Suleimani
THE LOWDOWN
Romeo Akbar Walter
Rating: 2/5 stars
Produced by: Dharma Productions, Azure Entertainment
Directed by: Robby Grewal
Cast: John Abraham, Mouni Roy, Jackie Shroff and Sikandar Kher
Killing of Qassem Suleimani
Killing of Qassem Suleimani
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
ZAYED SUSTAINABILITY PRIZE
The bio:
Favourite holiday destination: I really enjoyed Sri Lanka and Vietnam but my dream destination is the Maldives.
Favourite food: My mum’s Chinese cooking.
Favourite film: Robocop, followed by The Terminator.
Hobbies: Off-roading, scuba diving, playing squash and going to the gym.
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
The specs: Rolls-Royce Cullinan
Price, base: Dh1 million (estimate)
Engine: 6.75-litre twin-turbo V12
Transmission: Eight-speed automatic
Power: 563hp @ 5,000rpm
Torque: 850Nm @ 1,600rpm
Fuel economy, combined: 15L / 100km
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
More from Janine di Giovanni
More from Rashmee Roshan Lall
MISSION: IMPOSSIBLE – FINAL RECKONING
Director: Christopher McQuarrie
Starring: Tom Cruise, Hayley Atwell, Simon Pegg
Rating: 4/5
Dubai World Cup prize money
Group 1 (Purebred Arabian) 2000m Dubai Kahayla Classic - $750,000
Group 2 1,600m(Dirt) Godolphin Mile - $750,000
Group 2 3,200m (Turf) Dubai Gold Cup – $750,000
Group 1 1,200m (Turf) Al Quoz Sprint – $1,000,000
Group 2 1,900m(Dirt) UAE Derby – $750,000
Group 1 1,200m (Dirt) Dubai Golden Shaheen – $1,500,000
Group 1 1,800m (Turf) Dubai Turf – $4,000,000
Group 1 2,410m (Turf) Dubai Sheema Classic – $5,000,000
Group 1 2,000m (Dirt) Dubai World Cup– $12,000,000
ESSENTIALS
The flights
Emirates flies from Dubai to Phnom Penh via Yangon from Dh2,700 return including taxes. Cambodia Bayon Airlines and Cambodia Angkor Air offer return flights from Phnom Penh to Siem Reap from Dh250 return including taxes. The flight takes about 45 minutes.
The hotels
Rooms at the Raffles Le Royal in Phnom Penh cost from $225 (Dh826) per night including taxes. Rooms at the Grand Hotel d'Angkor cost from $261 (Dh960) per night including taxes.
The tours
A cyclo architecture tour of Phnom Penh costs from $20 (Dh75) per person for about three hours, with Khmer Architecture Tours. Tailor-made tours of all of Cambodia, or sites like Angkor alone, can be arranged by About Asia Travel. Emirates Holidays also offers packages.
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A German university was a good fit for the family budget
Annual fees for the Technical University of Munich - £600
Shared rental accommodation per month depending on the location ranges between £200-600
The family had budgeted for food, books, travel, living expenses - £20,000 annually
Overall costs in Germany are lower than the family estimated
As proof that the student has the ability to take care of expenses, international students must open a blocked account with about £8,640
Students are permitted to withdraw £720 per month
