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US delisting Chinese stocks?  Why some Chinese companies could get fired from the US stock exchanges.


Tensions between the United States and China have come to define modern geopolitics. They intensified in 2018 when President Donald Trump began imposing tariffs on imported Chinese products. This decision went against the recommendations of his team of economic advisers. Indeed, these events started the trade war that will continue during Trump’s presidency. While relations between the two superpowers have not been so strong since President Joe Biden took office, recent events have warned experts of further tensions. It comes as one of the US government’s regulatory agencies has raised the possibility of removing some of China’s largest state-owned companies from US stock exchanges if they refuse to comply with security laws. Naturally, this news has several important names slipping out today. So, is the United States delisting Chinese stocks?

Source: Akarat Phasura / Shutterstock.com

Let’s take a look at the facts as the two countries consider their options regarding this news.

Why is the US delisting Chinese stocks?

Today, Bloomberg reported that the Securities and Exchange Commission (SEC) has confirmed that it will implement new law for all international companies that trade on major US stock indices. Under this law, all companies will be required to turn their books over to US regulators for review. Failure to comply with this obligation will result in the removal of all companies from the stock exchange on which they trade.

Washington has forced companies to participate in this procedure since the adoption of the bipartite Sarbanes-Oxley Act of 2002. Only China and Hong Kong have held up, refusing to comply with this regulation.

This news has not been welcome for some of the Chinese companies that trade on US indices. E-commerce giant Alibaba Group (NYSE:BABA) started declining this afternoon, down 0.4% at the close, while some of its peers did not fare better. Digital Commerce Seller JD.com (NASDAQ:JD) ended the day down 0.85%, and the agricultural technology platform Pinduo (NASDAQ:PDD) was down 4.56% on the day. If this really happens, the delisting of Chinese stocks by the United States could certainly have serious consequences.

Why is this important

All of the names mentioned saw their shares plummet earlier this season when regulatory crackdowns from China sent negative shockwaves across several industries. If this new SEC law is fully implemented, however, it could certainly prove more serious for those companies who have avoided opening their books to US regulators. It should also be noted that under this new law, up to 200 Chinese companies could be delisted.

In a statement released by the agency, SEC Chairman Gary Gensler said the following. “If you want to issue government securities in the United States, the companies that audit your books must be inspected by the Public Company Accounting Oversight Board (PCAOB). He continued:

“The finalized rules will make it easy for investors to identify registrants whose audit firms are located in a foreign jurisdiction that the PCAOB cannot fully inspect. In addition, foreign issuers will be required to disclose the level of participation of foreign governments in such entities. “

Other reports have indicated that China is likely to retaliate against the move by restricting overseas listings for Chinese companies, forcing its publicly traded companies back to national stock exchanges. We already saw this last week when the Chinese government asked the Chinese mobile transport platform Didi Global (NYSE:HAVE I GOT) to develop a plan to delist from the US markets. This news was unprecedented, but it could certainly be emblematic of other events to come.

The bottom line

We are not sure what this new law will mean for national and international markets. What we do know is that this day has been happening for over a year – since before Trump left office.

While it’s unclear how China will react to this, it is likely to employ tactics that prioritize its interests. Anyone whose portfolio includes Chinese stocks that trade on US indices should keep a close watch.

At the time of publication, Samuel O’Brient had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.


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