China, Technology and the Stock Market

It was once said by a writer that socialism cannot produce innovation. Well, maybe I was wrong. In the truest sense of a Marxist economy, which I was referring too, is planned by a central government, with product pricing and means of distribution coordinated as well. However, in modern communist China, a hybrid economy has surfaced that to some degree allows the free flow of capital to innovation without a heavy government hand, thus far.

If we start with the premise that technology, including artificial intelligence, will be the primary force that becomes ubiquitous across all industries, then yes, China is a player. Silicon Valley was the cradle of technology, but now Beijing’s booming entrepreneurial scene is becoming the new mecca of technologic innovation. This has forever been the crux of American enterprise, with our virtually free market system giving anyone the ability to create wealth and own property to their best ability. This is no different in China. Socialism is a soul crusher to the worker, who Marx sought to advance. Just ask the modern day Chinese laborer.  Jobs at Chinese banks and state-run enterprises were and still are the pinnacle for college graduates, albeit grinding and unfulfilling. In a 2012 Gallup survey, 94 percent of Chinese respondents said they were unengaged with their jobs.

While entrepreneurship and a taste of wealth have come to Beijing, it has not gone totally unnoticed. China has sat by begrudgingly while its largest companies are listing their stock on foreign exchanges. Two of the country’s leading tech companies, Alibaba (BABA) and Baidu (BIDU), trade on New York Stock Exchange. Another, Tencent (TCEHY), is listed in Hong Kong, whose markets are largely separate from those on the mainland. Alibaba’s IPO in the United States in 2014 was the biggest in history, raising $25 billion, and Xiaomi just filed its own IPO in Hong Kong, which is expected to raise $10 billion.

In steps the heavy hand. The “C” in communism also stands for control. This and the fact that the Chinese want to become the world’s leader in technological innovation have initiated a decree to bring these large companies back to China.  “It basically comes down to pride and control,” said Andrew Polk, founding partner at research firm Trivium China. “Chinese regulators don’t like the fact that some of their marquee companies have listed overseas.” As one would expect, China has made its own stock markets less attractive due to regulation and the lack of institutional capital. With that said, Chinese stock exchanges valued at $8.8 trillion, making it the second largest in the world.  Foreign companies who list their stock on American exchanges like the NYSE do so as American Depository Receipts or ADR’s. China is looking to do the same. They will use China Depository receipts, or CDR’s to bring shares back to list in Shanghai or Shenzhen. They can do so while maintaining any existing overseas listings.

In China it is not so much about the money, but about control. If current firms listed abroad and new IPO’s in China stay in China, it will of course give the government more control. The CDR initiative is “intended to further subject large Chinese corporates to Beijing’s bureaucratic control,” said Brock Silvers, managing director at Shanghai-based investment advisory firm Kaiyuan Capital.

The bottom line here is that this move to bring back technological investment is just a policy ploy, and the big players like Alibaba realize it. This is a somewhat subtle way of saying that you need to be careful in what you do, and that the Chinese government in the end will ultimately decide their fate.

About John Thomas

John Patrick Thomas is a four-time cancer survivor who lives with his family in South Florida. John attended Gettysburg College and The American University before embarking on an entrepreneurial career on Wall Street. He turned to the teaching profession after his life-threatening bout with bone cancer. John has recently written a #1 Amazon Cancer Bestselling book entitled, “A Call to Faith, the Journey of a Cancer Survivor.” He has appeared in publications such as The New York Times, The Wall St. Journal, The Washington Post, Memorial Sloan-Kettering Cancer Center publications, and was featured in new DayStar network series, “Impact with Pastor Dave.” He has traveled as a missionary and may be one of the few people that tell you cancer was the best thing to ever happen to him. You’ll have to ask him why.

4 comments

  1. Yes sir John, we serve a great and mighty God. We have so much to be thankful for. When you say you are thankful for the cancer that you had I know what you mean. I have seen God’s healing hand in my life also. He increased my faith and love for him thru my accident. God has always kept his promises. Thank you for your testimony.

    • Hey Mark! Thank you for the kind words. You are one of the few who can relate to what I mean. I’m unabashed in my commentary and thank this publication for letting me vent lol. Take care my friend!

  2. We are hypocrites! The Chinese are eating our breakfast
    Lunch and diner and yet our own companies are tripping on each other to invest there! We went to war and sacrificed the lives of thousand of our young men in Vietnam and what happens now? Our companies are taking our jobs too to Vietnam.
    When our kids graduate with honors etc what meaningful jobs do we have for them here? Very very soon we should not be surprised to see our graduate kids learning Chinese to go and work in Foreign companies and those who don’t working at McDonald’s.
    We have to take a critical look at the type of capitalism we practice here. We need a humanistic capitalism now
    The Chinese don’t have that yet but if they do then it’s all over and our decline will accelerate.
    We like them should bend the rules where it is in our overall social interest and don’t expect capitalism in its purest form will solve our problems.
    They look to us to hold the banner of capitalism and exploit us as a country.
    Our closet ally Great Britain bends the rules all the time where it suits its overall social interest
    It takes advantage of our inventions and puts it companies at the forefront to smartly benefit more from
    our Research at the expense of US companies
    I will say yes to targeted tariffs , overt help for critical
    Major job creating industries in science and technology
    Impose punitive taxes on disloyal and greedy US companies who spirit our jobs away to other countries while benefiting from US research and consumer demand.

  3. Why not?
    Allow free expression of the truth because the truth
    will help us in the long run

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