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Foreign capital surged into China’s markets-especially government bonds-as the country’s economy recovered from its pandemic-induced 2020 slowdown and as US venture capitalists pumped money into Chinese startups at close to the pre-pandemic pace.īut as 2021 progressed, both countries’ governments hit the brakes on Chinese IPOs in New York, as China cracked down on the tech giants that had become the darlings of Wall Street and the United States started the clock on a process that could delist every Chinese company from US markets by 2024 because China refuses to abide by disclosure rules.Īctions like these have already reduced the market capitalization of Chinese companies listed on Wall Street by some six hundred billion dollars, and those losses likely will mount as more Chinese firms shift their listings to China’s stock markets. China’s companies launched a wave of Wall Street initial public offerings (IPOs) in the first half of 2021, helping Chinese stocks on US exchanges hit record highs in February. The links between US and Chinese financial markets never appeared tighter than early last year. And Beijing will have to decide whether it’s truly prepared for its companies to lose access to US stock markets just as its own slowing economy faces the pressure of a deepening property-market downturn. Washington has to calibrate whether it is willing to risk that market instability and whether it wants to face a backlash from powerful US financial interests who are happy to make money in China. This inevitably raises the question of how far each government is prepared to go.
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This doesn’t necessarily portend the imminent decoupling of the two superpowers’ financial markets, but with recent calls in Washington for new restrictions on investments in China, the potential for disruption is increasing.
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The pressure to separate the two countries’ financial markets came to a head over the past year, mirroring the centrifugal political forces that are straining bilateral trade in technology and other goods. But as Washington navigates the road ahead, it should keep a focus on national-security threats and avoid the temptation to push the two countries onto completely divergent paths that could raise the risk of financial-market instability. US-China financial ties are fraying as conflicting national concerns about technology transfer, corporate transparency, and data security threaten everything from Wall Street trading in Chinese corporate giants to American venture-capital investments in China’s startups.