PremiumAs China's crackdown on a group of after-school tutoring companies listed on US stock exchanges triggers panic, business tycoon Anand Mahindra has put out a tweet favouring Indian stocks.
Citing a report "Beijing’s threat to VIEs triggers Wall Street angst over China stocks", published by the Financial Times, Mahindra raised a few questions for investors.
The Mahindra Group chairman wrote, "Should investors now acknowledge the obvious: that despite our flaws we’re a democracy with the necessary institutional pillars of a market economy?".
He also asked investors, "And post the battering by the Delta variant, we’re on the cusp of a growth spurt? Time for Indian stocks to be investor magnets?".
It must be noted Chinese authorities announced a set of measures to tighten the leash on major corporations in entertainment, ride-hailing, education and online shopping, including cybersecurity checks on firms planning to raise money in foreign markets.
And as per the FT report, the move has wiped tens of billions of dollars off the market value of New York-listed Chinese companies.
The clampdown is part of the Chinese government’s campaign to lower the cost of raising children for the country’s struggling middle class. One piece of the new regulations is a legal business structure known as “variable interest entity," or VIE, which allows an investor to maintain a controlling interest in a company despite not owning majority shares.
VIE is a gray area in China’s financial legal system used by many privately held startups to raise massive funding from foreign investors.
US regulators have not approved any new listings of Chinese companies in recent weeks.
The Securities and Exchange Commission (SEC) said it would step up its supervision of Chinese companies listed overseas, including reviews of their cybersecurity.
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