What Business Relations Between US And China Mean For Leaders In 2021
William Rosenstadt is a partner and co-founder of Ortoli Rosenstadt LLP, and head of the firm’s capital markets and securities practice.
A new U.S. president and the ongoing global pandemic likely have many people interested in the current status of business relations between China and the U.S. Throughout the past year, there have been obvious concerns regarding an economic and political war between the two powerhouse countries. But are those concerns starting to fade?
Now more than ever, it appears to me that the nations are searching for ways to grow and prosper. Market performance over the first quarter of 2021 shows me that the two countries could be putting their differences aside. My research, as well as my experience co-founding a law firm that works with U.S.-based and international clients, has led me to conclude that significant opportunities exist for business professionals and entrepreneurs as a result of China and the U.S.’s relationship.
Tensions And Economic Progress
Despite political tensions — especially after President Biden’s recent joint address to Congress where he “painted a picture of a new great power competition with China,” according to CNN — a number of Chinese startups are still intending to list on the New York Stock Exchange.
Consulting firm EY, via CNBC, said that during the pandemic, half of 36 foreign public listings in the U.S. came from companies in Greater China. From my perspective, this could show that delisting concerns previously proposed by the Trump administration may have calmed, and Chinese startups, investors and businesses are looking to move into the U.S. market territory fast.
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With the influx of Chinese companies entering the initial public offering market in the U.S., some investors are remaining cautious. Many Chinese stocks saw post-IPO slumps this year, so a number of investors are naturally questioning if valuations are reasonable. Some cautious investors are dedicating their funds to a few of the same companies, “rather than spreading out their bets,” CNBC said. The outlet also reported that Ringo Choi, Asia-Pacific IPO leader at EY, said he “expects a slowdown in public offerings beginning in the third quarter of this year, especially if the macroeconomic environment takes a turn for the worse.”
Still, I believe Chinese IPO companies have had their successes this past year as well. China-based companies raised more than $11 billion in 2020 through the U.S. IPO market. Furthermore, market performance in the early months of 2021 saw that funds raised by Chinese groups on U.S. equity markets surged 440%. It is apparent that Chinese companies still hold a strong presence in the U.S. capital marketplace.
It’s no secret experts have predicted that China’s likely to become the world’s largest economy by the end of the decade. From my perspective, China was the first to deal with the pandemic in a cohesive approach. Corporate management teams appeared to spend their lockdown periods planning for a post-pandemic world while patiently waiting for the economy to reopen. I believe the country’s ability to take a catastrophic event as an opportunity to push major innovations and update plans is why China has recovered and is now growing faster than it was pre-pandemic.
A Look Toward The Future
Regardless of the political noise and attention-gathering headlines, capital market activity between China and the U.S. continues to be brisk. Although there are many macro- and micro-economic factors playing roles, my main conclusion is based on simple extrapolation of the current environment: The capital markets have never been more receptive to small- and mid-cap Chinese issuers. It is unlikely that this will change as long as U.S. capital markets continue to increase the wealth of U.S. consumers and China-based businesses have access to U.S. capital markets.
To increase market share and corporate growth, I advise professionals to consider appealing to the new Chinese middle-class customer base. In fact, I often remind my clients to heed the projections of the Chinese middle-class, which is expected to exceed the entire population of the U.S. by 2026, according to the U.S. China Business Council. If you’re expanding your business reach to target the Chinese middle-class consumer, the next few years should incorporate a strategic plan proving your offering is trustworthy and innovative.
The forecasts that show China becoming the world’s largest economy, with a middle-class larger than the size of the U.S. population, require cross-border business professionals and entrepreneurs to watch closely over the next few years. I believe China continues to represent innovation and change during the toughest of climates, and that brings opportunities. Investments and business opportunities that use the China market, however, will likely require professionals to have a different type of risk appetite.