What is ‘D’? It means literally – Deception, Digitization, Depopulation, Deurbanisation, and many more…The list is long. Chinese administration has a monopoly over some of them.
So when former Morgan Stanley Asia chairman and noted economist Stephen Roach, who is considered one of the world’s leading experts on Asia, warned last week that “Beijing’s crackdown against U.S.-listed China stocks will have widespread market implications…..” it got wide attention. He believes the actions are signaling the early stages of the cold war and the “tensions between the world’s two largest economies could get to levels not seen since the early 1970s.” His observation cannot be taken lightly.
Last week Beijing regulators targeted China education stocks TAL Education and New Oriental Education and Technology and the ride-hailing company Didi and suddenly their shares tumbled. In fact, there is a strong opinion building up in the US that it’s too risky to invest in China stocks that trade on U.S. exchanges due to the regulation threat. Today it was education, tomorrow it could be pharma. Such state intervention will end up sucking liquidity.
Many others who keep a hawkish eye on China’s game plans have also warned that U.S.-China relations were eroding and the two countries were on the brink of a cold war. It seems this time China has crossed the line. “These are actions that are really in getting to the core of what has been so exciting about China for a number of years,” Roach said. In a recent interview, he continues “I am a congenital optimist when it comes to China. But I find these actions really quite disturbing….China is going after the core of its new entrepreneurial-driven economy, and it’s going after its business models. Even if U.S. companies don’t trade directly with China, virtually everything they touch goes through global supply chains, so a chill in the U.S.-China relationship has significant implications for U.S. companies and for investors investing in U.S. companies. You can’t get away from the China connection.”
Many others have warned investors on similar lines that it’s too risky to invest in China stocks that trade on U.S. exchanges due to the regulation threat. Beijing’s crackdown on US-listed Chinese stocks will have certainly widespread market implications.
Chinese action is a step in the wrong direction that must be taken very seriously by the world community because this could lead to a third world war-like situation that will not be fought on the battlefield. A sign of an early stage of a cold war is clearly looming.