The six biggest Chinese stocks awaiting delisting from US exchanges have a combined market capitalisation of more than $1 trillion, according to the latest financial data, and include the biggest names in China’s new economy, such as Alibaba Group Holding, Pinduoduo and JD.com.
US securities regulators have started a countdown that will force many such companies to leave American stock exchanges, after a long-running confrontation between Washington and Beijing.
Last year, an executive order banned American investment in firms with ties to China’s military, as well as forced delistings. Later, Congress passed the Holding Foreign Companies Accountable Act, to enforce stricter auditing compliance requirements on firms from China.
The moves “demonstrate that US policymakers view financial investment restrictions as part of their toolbox for resetting US-China economic relations” Adam Lysenko, Mark Witzke, Thilo Hanemann and Daniel H Rosen wrote in an analysis for the Rhodium Group.
The US-China Economic and Security Review Commission (USCC) has published a table of companies facing possible delisting. As of May 5, there were 248 Chinese companies listed on these US exchanges with a total market capitalisation of $2.1 trillion, USCC noted.
The USCC was created by Congress in October 2000 with a legislative mandate to monitor, investigate and produce an annual report on the national security implications of bilateral trade and economic relations between the US and China.
Despite the threats, the number of Chinese companies listed on US equity markets rose 14% to 248 in May this year from 217 in October 2020. Since May, when the last USCC update was published, however, some 16 companies have delisted, leaving 232 China-based companies listed on major US exchanges as of August 31, according to Duff & Phelps data.
Two-thirds of these firms trade on the Nasdaq, and all but a handful of the rest on the NYSE. “New policies and regulatory actions increasing scrutiny on offshore-listed Chinese companies have created uncertainty and weighed on the stock prices of many Chinese firms traded on US exchanges,” Duff & Phelps commented.
The six largest companies, by market capitalisation, are Alibaba Group Holding ($444.4 billion), PetroChina ($146.2 billion), JD.com ($120.6 billion), Pinduoduo ($117.2 billion), China Life Insurance Company ($109.9 billion) and China Petroleum & Chemical Corporation, known as Sinopec ($75.5 billion).
Last month, US authorities banned a China Telecom subsidiary from operating in the US. Although unlisted, the action against China Telecom Americas demonstrated Washington’s intent.
The plunge in prices of some Chinese stocks could prompt automatic delisting from US exchanges. Both Nasdaq and the NYSE begin delisting procedures once a firm’s shares fall below $1 for more than 30 business days.
Companies that breach this limit are given six months to resume compliance, so the firms would have some time to tackle the problem.
Some Chinese companies might turn to the courts to fight any delisting. In March, a federal judge suspended a blacklisting for Beijing-based smartphone maker Xiaomi, a legal victory that might spur other actions.
• George Russell