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China telco shares drop in Hong Kong as US orders delisting

Shares of China’s three major telecoms companies in Hong Kong dropped as much as 5% on Monday upon news of likely delisting from US stock markets. The companies are among a batch of Chinese companies the US government has deemed affiliated with the Chinese military.

Why it matters: Shares of the three state-owned telcos dropped even as Chinese regulators tried to downplay the impact of the New York Stock Exchange’s (NYSE) decision to delist them. China’s top securities regulator has said the plan was “politically motivated” and that it will have a “limited impact” on the three companies.

Details: The NYSE said Thursday it would delist China Mobile, China Telecom, and China Unicom Hong Kong on Jan. 7, citing an executive order signed by US President Donald Trump in November.

  • On Monday, shares of China Telecom fell 5.6% in Hong Kong. China Mobile and China Unicom saw their shares drop 4.5% and 3.4%, respectively.
  • The order bans transactions in securities “designed to provide investment exposure to such securities, of any Communist Chinese military company” by any person in the US. The order included 31 entities that were deemed to be such companies, including the three telcos.
  • The NYSE said it had decided that the companies were “no longer suitable for listing,” but added that they have the right to request a review of the decision.
  • All three of them said in statements to their Hong Kong investors they had not been notified by the NYSE about the delisting decision.

Context: China Mobile was one of the first Chinese state-owned companies that went public in the US in 1997, followed by China Unicom in 2000, and China Telecom in 2002. The three are also listed on the Hong Kong Stock Exchange.

  • The three companies earn most of their revenue from providing telecoms services in China and have little presence in the US.
  • China Telecom was previously allowed to provide international communications service in the US. In December, the US Federal Communications Commission (FCC) decided to revoke this authorization, citing national security concerns.
  • The FCC rejected an application from China Mobile to provide services in the US in May 2019.