While Washington and Beijing battle over trade, a worrisome cross-border financial link has largely escaped scrutiny: Americans now collectively own most of the public equity of China’ biggest tech companies, including Alibaba, Baidu and Weibo. This relationship is strange (imagine if the Chinese owned most of Amazon, Facebook and Google). It’s also extremely risky, at least for American investors.

China’s tech darlings began tapping U.S. investors in the early 2000s, when mainland capital markets were unsophisticated and the strict profitability requirements of PRC exchanges shut out most fast-growing tech firms. To list in Shanghai, for example, a firm had to show three years of profitability. Nor was Hong Kong a viable option, as until recently it banned the use of dual-class structures favored by tech entrepreneurs. So off to New York went Baidu, JD.com, Alibaba, and dozens of other Chinese unicorns and near-unicorns thirsty for growth capital. There, they found Americans eager for exposure to China and its explosive growth. With few alternative China pure plays, investors jumped at the opportunity to invest in these Chinese tech firms’ IPOs.

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