Editor’s note for Tuesday, July 6, 2021

My thoughts today:

IPOs of Chinese companies on U.S. markets have not slowed in recent months despite growing tensions between the two countries. But that may change after this week’s news of a Chinese regulator probe, with teeth, into data security issues at ride-hailing giant Didi Chuxing.

Didi listed in New York just six days ago — share prices are down 20% today after news of the Chinese government actions broke (see top story in our newsletter below or full coverage on The China Project). Wall Street Journal reporter Lingling Wei called this another sign of ongoing “financial decoupling,” and notes that it’s “getting increasingly impossible for companies to meet the demands from both China and the U.S.”

Bill Bishop of the Sinocism newsletter agrees: “Some measure of financial markets decoupling seems inevitable given the long-standing U.S.-China issues over data-sharing, the broader deterioration of the U.S.-China relationship and Xi’s expanded comprehensive national security concept that effectively means everything is national security now.”

In a separate development from the Didi news, Facebook, Twitter, and Google “have privately warned the Hong Kong government that they could stop offering their services in the city if authorities proceed with planned changes to data-protection laws,” reported the Wall Street Journal yesterday.

We’re already in a bifurcated world on the internet, with two completely separate digital networks — one in China, and one largely controlled by the U.S. but available to much of the rest of the world. But as this divergence was happening, starting in the 1990s as Beijing built its Great Firewall, there has been a gradual — if limited — convergence of financial markets and financial interests.

It looks like 2021 will mark the end of that phase of China’s relations with the outside world. Even though new sectors of China’s financial industry may open to foreign investment, and bankers will find innovative ways to offer financial services on both sides of the Pacific, the Chinese government will find innovative ways to attract or compel Chinese companies back to Chinese stock markets, and to force foreign companies to make uncomfortable decisions about where their data and their values lie.

Upcoming events:

• July 7: The CEO of Basic Fun!, a major U.S. toy company that owns brands such as Care Bears and Fisher-Price Classic, discusses the challenges and benefits of sourcing from China in 2021.
• July 15: How to start a career in China.

Our word of the day is collection and use of personal information (收集使用个人信息 shōují shǐyòng gèrén xìnxī).

—Jeremy Goldkorn, Editor-in-Chief