NYSE weighs reverting to original plan to delist China shares

The New York Stock Exchange is reconsidering its decision to halt the delisting of three major Chinese telecommunications firms after Treasury Secretary Steven Mnuchin told the Big Board he opposed its shock announcement to grant the companies a reprieve, said three people familiar with the matter.

Mr. Mnuchin called NYSE Group Inc. President Stacey Cunningham Tuesday to express his disapproval, said the people, who asked not to be named in discussing a private conversation.

NYSE's announcement Monday that it wouldn't remove the companies — China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. — caught some officials at the White House, Treasury and State departments off guard. It also sowed confusion among the regulators who had helped craft the order signed by President Donald Trump in November that requires American investors to unload Chinese businesses deemed as posing a threat to U.S. national security.

NYSE first announced it would delist the companies on New Year's Eve. The remarkable back-and-forth — along with opaque statements from Treasury's Office of Foreign Assets Control on how soon action was required and which securities would be affected — has confounded U.S. brokers and asset managers, and triggered uncertainty for traders worldwide.

The NYSE's initial decision was meant to comply with the order but the exchange changed course when it became unclear that the companies were actually banned, according to people familiar with the matter. If and when the exchange receives confirmation from the government about what's prohibited, it will move forward with delisting, the people said. Treasury may provide further clarification through OFAC, one person said.

NYSE and Treasury spokesmen declined to comment. Treasury released a document Monday that offered clarifications on the order hours before the exchange announced its decision to not delist the companies.

The possibility that the firms will still be delisted means financial markets are likely to face further disruptions from Mr. Trump's crackdown on Chinese companies. China Mobile, China Telecom and China Unicom all rallied Tuesday, with investors concluding that the NYSE's reprieve indicated tensions might be easing between Washington and Beijing.

The order signed by Mr. Trump is still scheduled to take effect on Jan. 11 — nine days before he leaves office. An official working on Joe Biden's transition declined to comment on whether the president-elect would reverse it.

If Mr. Biden leaves the order in place, U.S. investment firms and pension funds would be required to sell their holdings in companies linked to the Chinese military by Nov. 11. And if the U.S. determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.

Since the start of the coronavirus pandemic, the Trump administration has ramped up its attacks on China, imposing sanctions over human-rights abuses and the nation's crackdown on Hong Kong. The U.S. has also sought to sever economic links and deny Chinese firms access to American capital.

Hard-liners in the administration — among them Secretary of State Michael Pompeo and White House trade adviser Peter Navarro — have warned investors for months that Chinese companies could be delisted from U.S. exchanges. As far back as August, a senior State Department official, Keith Krach, wrote a letter warning universities to divest from Chinese firms ahead of possible delistings.

One of their arguments was that the Chinese companies don't adhere to internationally accepted accounting practices. The other argument, laid out in Mr. Trump's November executive order, is that many Chinese companies have links to China's military and pose a threat to American national security.