Choices Choices

Worsening relations between the US and China are pushing NetEase toward a secondary listing on the Hong Kong Stock Exchange

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What's going on?

NetEase is already listed on the US stock market, but the Chinese company’s now planning a secondary listing in Hong Kong. Well, you cant blame a tech giant for wanting to keep its options open

What does this mean?

Everything seemed to be going well between the US and China toward the end of 2019, when the two agreed to a truce that brought their years-long trade war closer to a resolution. But tensions have risen again this year with the two slinging mud at each other over the coronavirus outbreak and, more recently, Chinas intention to limit Hong Kongs freedoms with a national security law.

The US president wasnt happy with Chinas decision, and nor was the Senate: its since retaliated by passing a bill thatd bar Chinese companies from listing on US exchanges, and even go as far as to delist existing ones like Baidu, Alibaba, and NetEase. The latters decision to list elsewhere, then, is its way of protecting its own interests if and when the bill actually goes ahead.

Why should I care?

For markets: Open sesame.
NetEase isnt alone: JD.com, Chinas second-largest online retailer, had the same idea. Both companies were likely emboldened by Alibabas own hugely successful $11 billion share sale in Hong Kong last year. And seeing as some investors are worried Chinas security law announcement will damage Hong Kongs status as a major financial center, both new listings could give the regions markets a much-needed boost too.

The bigger picture: Playing hard to get.
There might be another reason Chinese tech companies are heading to Hong Kong. The regions stock exchange used to have rules banning companies from listing if they had dual-class share structures the kind popular among tech companies whose founders want to keep disproportionate voting rights. But after missing out on several major tech initial public offerings, the Hong Kong Stock Exchange decided to relax those rules almost a year ago to lure them back.

Originally posted as part of the Finimize daily email.

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