DELISTING OF CHINESE FIRMS AND COMPANIES – POSSIBILITY OR A STUNT?
President Trump is to sign the last bill very soon, a bill that would delist Chinese companies that are not ready to follow the American auditing rules after a buffer has been passed by the House of Representatives of United States Wednesday. The laws also unanimously passed the Senate in May. Beijing does not allow the American watchdog to inspect Chinese firms‘ audits how it would like to.
Trump’s White House has also individually recommended the U.S. Securities and Exchange Commission to delist companies from compliance with 2022 — a tighter deadline. Rather, „the authorities will likely welcome the re-listing of Chinese firms“ in southern China, Hong Kong or other foreign exchanges, Segal told Nikkei Asia in an email, adding that the invoice or action by the SEC could accelerate moves by Chinese firms to domestic exchanges.
„Having said this, the Chinese companies that benefit from issuing and trading on U.S. exchanges aren’t without influence“ in China and“might advocate compromise or compliance prior to the actual delisting kicks-in“ and that they may also be“waiting to determine the management of China policy under the Biden government,“ she added. The three-year-old company, backed by big-name institutional investors, was kicked from the Nasdaq Stock Market in June after almost all of its evaluation disappeared.
The China Securities Regulatory Commission, which cooperated with the SEC on the Luckin investigation, said last month it had been anticipating a fresh round of talks with American regulatory bodies about the best way best to enhance access to Chinese firms‘ audits. It’d sent more than the fourth edition of these plans to the U.S. oversight board in August. Meanwhile, Chinese technology giants such as Alibaba Group Holding and JD.com, both recorded in New York, already finished secondary listings in Hong Kong following calls on Capitol Hill last year, which called for a delisting ultimatum.
Some others have been getting offers to go private. In September, Sina — operator of“Chinese Twitter“ Weibo and among the first Chinese technology companies to list in the U.S. — entered into a $2.6 billion deal with a holdings company owned by business executives to go private. This week, U.S.-listed Chinese property site Fang Holdings announced it received a preliminary purchasing proposition from General Atlantic. Some specialists in the U.S. fear that the delisting solution, while well-intentioned, could damage American investors.
„Beijing is not likely to back down, resulting in a tsunami of delistings and inexpensive take-privates that hurt existing investors in China-based companies,“ Jesse Fried, a Harvard Law School professor, and Matthew Schoenfeld, a portfolio manager in Chicago, warned in a post published on the Harvard Law School Forum on Corporate Governance after the bill passed the Senate.
Word of the scheduled vote on the laws also set a sell-off of Chinese stocks this week, with Alibaba and JD.com down more than 5% from last Friday’s close. Chinese electric vehicle manufacturer NIO, despite coverage better-than-expected results last month, is down over 11%. A London-based retail investor tweeted Wednesday with regard to Chinese electric carmaker NIO. „Just sold 75 percent of a position at a business that I love, but because of the U.S. announcing plans to delist. . .Chinese businesses, this became really tough to predict!“ If the legislation is passed, it may affect companies like Alibaba, oil giant PetroChina, JD.com and over 200 other names.
Chinese firms listed on U.S. exchanges have a combined market capitalization of about $2.2 trillion, so a mass delisting would imply key movements of capital. Harvard Law School’s professor of law, Jesse Fried, in an interview on CNBC’s“Street Signs Asia,“ said that when the bill becomes law, He believes these companies will leave our exchanges, and they are going to depart on prices which aren’t likely to make American investors better off,“ U.S. policy is letting China flout rules that American businesses play by, and it is dangerous.
And we are not talking about large institutional names on Wall Street. This may also have an enormous effect on retail investors, who directly own shares of Chinese companies or have retirement portfolios that have ETFs that cover these businesses. Some say that Chinese authorities would not really mind if this law goes through. Let us say Alibaba does get delisted. It really speeds up something which Beijing is already attempting to do: build up its exchanges.
More major Chinese firms listing at home could be welcome information, and it would not be so bad for these firms either. Chinese markets are a lot more sophisticated today than they were ten years back, so companies retrenching and record in China would not be as limiting as it once was. And concerning logistics, a lot of China’s blue-chip companies already have secondary listings in Hong Kong, which would make the transition much simpler.
A company like Alibaba departing the United States also appeals to Beijing since it lessens the use of U.S. regulators. „Having these companies trade in America gives rise to frictions with the Chinese government since the U.S. authorities wish to impose their rules on such businesses,“ Fried explained. Ultimately, we’re managing the world’s two biggest markets, whose financial markets are becoming more and more intertwined. Decoupling, the two is complex and not particularly advantageous for both nations.
Despite the legislation, Chinese companies have pursued secondary Listings in Hong Kong as a hedge against the potential ban from trading their stocks in the U.S. Alibaba, NetEase and Yum China have already listed their shares in Hong Kong. The city’s stock exchange will finish the year as the world’s second-largest IPO market after raising a total of $50 billion in new listings, according to data compiled by KPMG.
At the same time, Chinese companies have continuously gone public via U.S. stock exchanges even though American law is being ignored. They had raised about $12 billion in IPOs this year, the highest since 2014 when Alibaba debuted. The SEC Action is being driven by The President’s Working Group report and has recommended that New York Stock Exchange, Nasdaq establish and various other exchanges shall be improved standards wise in order to prevent the list of companies that don’t adhere to U.S. rules. The report called on the SEC to pass new rules but said they shouldn’t take effect until January 2022 to reduce market disruptions.