Not long ago, investors were afraid US regulators would delist the army of Chinese companies quoted in New York over prosaic audit standards. The bigger concern right now is that Beijing will pull the rug from under businesses such as Alibaba by curbing or closing an offshore ownership loophole.
The status of the financial tourists has always been ambiguous. Most depended on a 27-year-old rule permitting subsidiaries incorporated outside China to list overseas without official approval. The ecommerce giant set up by Jack Ma boasts a US listing via an entity incorporated in the Cayman Islands, for example.
The legal title of US shareholders to the underlying Chinese assets is tenuous. Rumours are now flying that Chinese regulators are pondering “variable interest entities”. If these are made harder to set up or prohibited it could cause significant disruption and cost to investors.