As the White House continues to put pressure on Beijing to reach a deal on trade, concerns are growing the Trump administration may try to shut Chinese companies out of capital markets in the United States. It would mark a stark shift in policy and politicise what has been one of the key tenets that has fuelled massive gains in the US financial markets for decades – the free flow of capital. Any move to restrict Chinese access to US markets would also be a dramatic escalation of a trade war between the world’s two largest economies that has spread far beyond trade to technology and long-running government policies in China. Former White House chief strategist Steve Bannon recently said access to the US markets should be restricted until China agrees to reforms. A bipartisan group of American lawmakers has also called for Chinese companies to be subject to stricter disclosure requirements over their ties to China’s government and its security apparatus. All of this comes as Chinese companies have been some of the most prolific users of the American capital markets in recent years, with the New York Stock Exchange and Nasdaq both actively courting high-profile listings from Chinese technology giants Alibaba Group Holding, JD.com and Weibo, as well as Tencent Holdings’ spin-off music streaming business. Alibaba is the parent company of the South China Morning Post . Bao Fan, the chairman and chief executive of investment bank China Renaissance Group, said executives at Chinese companies have been asking the “hard question” lately of whether to list in the US, or do so closer to home. China Renaissance has served as an adviser to and investor in some of the country’s biggest technology companies. “Between the offshore markets – Hong Kong versus the US – the future direction seems to be pointing more in favour of Hong Kong,” Bao said. “I think, particularly for those Chinese companies where they have significant political risks embedded in their business model, Hong Kong seems to be a more logical choice.” Since 2013, Chinese companies have raised about US$46.1 billion through 101 new listings in the US, the highest amount by companies domiciled in a single country other than American companies, according to financial data provider Refinitiv. Why Trump’s Huawei ban deals a harder blow than his tariffs Chinese companies have also accounted for 55 per cent of all new listings in the US by overseas companies so far this year, raising more than US$1.18 billion and bringing to market more companies than all other foreign issuers combined, according to Refinitiv. Hong Kong’s stock exchange, on the other hand, changed its listing rules last year to encourage listings by technology companies with weighted voting rights and pre-revenue biotechnology companies. It will also allow companies listed elsewhere to file confidentially for a secondary listing in the city. The rule changes have yet to pay off for the city, as Hong Kong fell behind America’s top exchanges for IPOs in the first five months this year. Since taking office, US President Donald Trump has taken a hard line on China, placing tariffs last year on nearly half of all Chinese-made goods imported into the US as he tries to force Beijing to further open up its markets and change years of industrial policies, ranging from financial support to protection of intellectual property. After appearing close to a deal last month, the Trump administration escalated the trade war, raising tariffs to 25 per cent on about US$200 billion of Chinese products, and threatened to add new levies on another US$300 billion of goods later this year. China has responded with its own tariffs, warned Chinese students about studying in the US and threatened to blacklist “unreliable” foreign companies that have damaged Chinese interests. “Initially the US-China tensions were supposed to be focusing on trade, but as the whole game plays out it is moving beyond trade,” said Ng Kheng Siang, Asia-Pacific head of fixed income at US financial services company State Street. “It is more of a strategic, economic dominance and competition [issue]. When you get to that level of the game, everything changes.” The escalating tensions also come as many US financial services firms and investment funds move to increase their exposure to China and the potential of its evolving domestic economy. In addition to targeting trade, tensions are rising between the US and China over technology, with American officials banning Chinese telecommunications company Huawei and more than five dozen of its affiliates from buying technology and components over national security concerns. The US is considering a similar ban against China’s Hikvision, one of the world’s biggest CCTV companies. China to blacklist ‘unreliable’ foreign entities that ‘hurt Chinese firms’ In April, a bipartisan group of more than three dozen US congressmen and senators, including US Sen. Marco Rubio, urged the state, commerce and treasury departments to strengthen disclosure requirements to alert investors about Chinese companies, including Hikvision, “that pose national security dangers or are complicit in human rights abuses”. “Americans would likely be very troubled, if not outraged, to learn that their retirement and other investment dollars are funding Chinese companies with links to the Chinese government’s security apparatus and malevolent behaviour – links that represent material, asymmetric risks to corporate reputation and share value,” the lawmakers said in the April 4 letter , which in part raised concerns about Beijing’s treatment of Uygurs and other Muslim minorities. Since then, a bipartisan bill sponsored by Rubio, a Republican, is proposing that Chinese firms and other companies that decline to open their audits to US regulators be delisted . Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington, said the US appears to be becoming more closed when it comes to the free flow of capital, noting the US has expanded reviews of foreign investment last year and is considering expanded export controls for “emerging technologies”. “It seems, that at least for now, the US is moving in a direction of being more closed off to the world. This stuff is not just affecting China,” Chorzempa said. “It might have been motivated by fears or national security concerns with China, but there is a collateral effect as well. These reviews and export controls are applying to other countries than China, adding to compliance burdens and extending reviews for investments even from US allies.” Bank of America said some signs are emerging that “China and the US may decouple financially in the long run”. If the two economies were to decouple, some Chinese companies may delist their American Depositary Receipts, US investors may feel pressure to exit Chinese stocks and IPOs may shift to Hong Kong or mainland China from the US, Bank of America strategists David Cui, Tracy Tian and Wenqing Han said in a research report. “This would be a notable negative for new economy sectors in China, the primary US listing candidates,” they said. “This is because the US capital market is much deeper and also offers other benefits, such as access to expertise.” SMIC, China’s biggest chip maker, moved last month to withdraw its listing in New York after 15 years, citing low volumes and burdensome costs. At the same time, Alibaba, which is listed in New York, is reportedly considering a secondary listing in Hong Kong. The NYSE and Nasdaq declined to comment. “The world today, it's very small and highly efficient and flows of capital move around the world instantaneously,” said Mark D. Wiseman, the global head of active equities at BlackRock. “There are certain advantages for companies to have a listing in the US, but there’s also disadvantages and advantages to listing in Hong Kong or elsewhere. The reality is capital will flow fairly efficiently to find risk exposures.” One area to watch will be Shanghai Stock Exchange’s new Technology Innovation Board, Bao, the China Renaissance CEO, said. “I think, fundamentally, Chinese companies listed in the US are thinking about a mechanism where they can get more Chinese investors to invest in their stock. If you have secondary listings or even third listings closer to the home market, it'll be helpful,” Bao, who is a member of the advisory board to the TIB, said. “With the recent rhetoric about potentially eliminating or driving Chinese companies out of the US capital markets, I think that would probably make it an even more pertinent discussion.” The Shanghai exchange approved the first three firms to raise funds on the new technology board on Wednesday. Another question in the minds of analysts is whether a move to restrict Chinese access to the US capital markets accelerates efforts by Beijing to globalise the use of the yuan as a trade currency. “The currency conflict can be just as important as the tech conflict, in our view,” Cui and the other Bank of America strategists said. “After seeing how far the US government is prepared to move against China's tech sector due to national security considerations, it's reasonable to assume that its action on the currency front may be as far-reaching.” James Finch, clinical associate professor of finance at New York University’s Leonard N. Stern School of Business, said: “The overwhelming driver in China is political control. To have a trade currency, you have to have to get rid of all the controls on the currency. “Whoever is accepting that as a trade currency – there’s always going to be a bit of suspicion of what’s going on behind the curtain that’s going to manipulate the currency [and] that’s independent of the actual trade flows involved, but can have some overriding political influence.” Finch, however, said the Trump administration has to be careful with how it plays its hand when it comes to access to the capital markets. “Trump has to watch out – I think he’s aware of this – of how far he can push this. If the US markets aren’t viewed as a viable, stable counter party, other markets are going to evolve as a counteracting force to that,” Finch said. “That’s what companies want. They want stability, they want liquidity, as do investors. If you’re going to put that into question, ultimately you’re going to create the dynamic where you’re going to get a competitor somewhere in the world.” Additional reporting by Louise Moon