Wall Street puts US-China tensions in rear-view mirror as it extends $4bn welcome to Didi

One of the biggest surprises so far about Joe Biden’s presidency is that he is every bit as hawkish towards China as his predecessor.

Anyone who expected that the United States might row back on trade hostilities with China initiated by Donald Trump and his war on specific companies such as Huawei will by now have been disabused of that theory.

Although Mr Biden is reported to be seeking diplomatic dialogue with China, the president’s recent visit to Europe for the G7 and NATO summits was widely interpreted as an attempt to build support for a tougher stance towards the country from America’s allies.

Meanwhile it was reported today that the US and Japan have been participating in war games and joint military exercises in readiness for a possible conflict with China over Taiwan.

There is, however, one corner of the United States that remains more favourably disposed towards China: Wall Street.

It has just given the warmest possible welcome to Didi Global, the Chinese ride-hailing app, a competitor to Uber.

The company floated on Wednesday on the New York Stock Exchange and, having priced its shares at $14 each, saw them surge by 21% at one point.

They eventually settled at $14.14 – giving the company a stock market valuation of almost $70bn.

As striking was that the shares were priced at the top end of the valuation range published by the company and that Didi raised $4bn from the initial public offering (IPO), more than originally anticipated.

It was the biggest flotation of a Chinese company on Wall Street since the e-commerce giant Alibaba raised $25bn in 2014.

Another very striking aspect to the IPO was that according to the Wall Street Journal, Didi priced the issue just three business days after it launched its roadshow, making it one of the shortest investor pitches for a stock market debut in recent memory.

If investors were at all nervous about the possible political risks involved in putting money into a high profile Chinese company, one which derives no less than 94% of its revenues from China, they certainly did not show it.

This was despite the fact that US Congress passed legislation last year that could force Chinese companies to give up their US stock listing.

The law, which was written by both Democrat and Republican senators, was passed by the US Senate in May last year and was unanimously approved by the House of Representatives in December.

The measure was introduced following a number of accounting scandals involving Chinese companies, most notably the coffee chain Luckin Coffee, which was delisted from the Nasdaq in April last year.

It was passed in response to China’s refusal to allow US regulators to inspect audit records produced in the country.

The Securities and Exchange Commission (SEC), the main US financial regulator, said when the bill was presented to the Senate that it would mean investing in Chinese companies would carry “substantially greater risk”.

Didi, which was only founded in 2012, actually warned investors of these risks in the run-up to its IPO.

Page 11 of the prospectus for the share sale carried this warning: “Recent litigation and negative publicity surrounding China-based companies listed in the United States may negatively impact the trading price of our [shares].”

Nor is Didi the only Chinese company to have listed in the US in recent weeks.

According to Refinitiv, the data provider, 29 Chinese companies raised a total of $7.6bn during the first six months of the year.

That compares with $11.7bn raised by Chinese companies through US IPOs during the whole of 2020 – which was, itself, the busiest such year since 2014.

Among other Chinese companies coming to market in New York so far this year include Full Truck Alliance, a freight dispatch platform now valued at $22.1bn, which raised $1.6bn when it came to market last month.

The same day saw AiHuiShu, a consumer electronics transactions and services platform, float on the New York Stock Exchange.

Other Chinese companies listing in the US in 2021 have included MissFresh, an online grocery delivery company, which joined the Nasdaq last month with a $2.5bn valuation.

And Kanzhun, an online recruitment services business, also floated last month.

Further back Tuya, an “internet of things” cloud platform, joined the stock market in March and now carries a $25bn valuation.

Not all of these businesses have performed as well in the after-market as Didi has.

MissFresh, for example, saw its shares fall by 25% on debut.

Others, like AiHuiShu, still trade at a premium to their price on debut.

In some cases, the premium is spectacular: shares of Kanzhun closed last night at $39.65, having been sold at $19 each.

This rush to list in the latter half of 2020 and early 2021 reflects, in part, a bottleneck of new issues that built up during the early months of the pandemic.

It reflects a growing conviction that the Biden administration will eventually water down the legislation passed last year against Chinese companies.

The trend also reflects a hot IPO market – US companies have raised $70bn so far this year – propelled by ultra-cheap money due to the Federal Reserve’s loose monetary policy and by Mr Biden’s stimulus measures.

And it also reflects the fact that a lot of these Chinese businesses coming to market are in precisely the sectors – technology, media and telecoms – to which investors are keen to build more exposure.

It also shows, however, how quickly some US investors have been to move on after the Luckin Coffee scandal.

With more Chinese companies said to be preparing to come to market they will have few excuses if, further down the line, holding these stocks leaves them with burnt fingers.

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