For months, federal regulators have increased pressure on Chinese and Beijing companies listed on US stock exchanges to comply with US listing rules.
But on Friday, five of China’s largest US-listed state-owned giants, valued at a combined $318 billion, announced they would be leaving Wall Street, marking an acceleration in the financial decoupling between the US and China.
state insurer chinese life insurance, energy giants PetroChina and China Petroleum & Chemical Corporation, along with Aluminum Corporation of China and Sinopec Shanghai Petrochemical, said on Friday they will delist from the New York Stock Exchange (NYSE), as Washington and Beijing continue to compete to allow American inspectors audit Chinese companies. The fight could lead to hundreds of China-based companies being delisted from US stock exchanges.
Just in case, Chinese companies are preparing to be kicked off Wall Street. “SOEs are seeing that the writing is on the wall for them,” said Liqian Ren, head of modern alpha at investment firm WisdomTree Asset Management. fortune, and indicates that a bigger shift could be underway for other China-based SOEs as well.
The United States and China are in fools during a decades-long dispute over allowing US inspectors to audit US-listed Chinese companies. The US audit watchdog wants full access to Chinese companies’ auditors and audit documents, but China refuses. has denied, citing national security concerns. The United States could delist more than 260 Chinese companies worth a combined $1.3 trillion by 2024 if Washington and Beijing cannot reach an agreement.
China Securities Regulator said in a Friday statement that “listings and delistings are… common in the capital markets.” He added that the five state-owned companies followed US rules while listing on US stock exchanges, and that their delisting decisions were only “made for commercial considerations.”
Other US-listed Chinese companies could follow in the footsteps of the five state-owned enterprises (SOEs). The remaining two Chinese SOEs listed on US stock exchanges, two airlines tied to the state, will “definitely consider” delisting from New York, says Ren. All of China’s state-owned companies have information that Beijing considers sensitive or critical to national security and doesn’t want US inspectors accessing, which means it wouldn’t be a surprise if the remaining state-owned companies decide to delist soon, Brendan Brendan Ahern, chief investment officer at KraneShares, a China-focused investment fund, said Fortune.
However, this coverage is not limited to state-owned companies. Other Chinese companies want to keep their listings in the United States. But eventually “they will review the situation and make a strategic decision,” says Ren. For most big companies, they will feel listing in the US is risky and exposes them to getting caught in the crossfire between Chinese and US regulators, especially as China-US ties deteriorate, He says.
And companies not linked to the state have been moving to reduce those risks. On July 29, the US Securities and Exchange Commission (SEC) Chinese tech giant Alibaba added—which grossed $25 billion in 2014 in the US. the largest initial public offering in history—to your opt-out watchlist. alibaba Announced that it is changing its Hong Kong listing from secondary to primary status, allowing it an exit route in the event of delisting, and allowing it to take advantage of mainland Chinese investors.
In recent months, the SEC has continued to add Chinese companies to its now-long list of companies facing expulsion from US stock exchanges. SEC Chairman Gary Gensler has reiterated that the United States will accept nothing less than China’s full compliance.
beijing reportedly it wants to strike a deal with Washington that would separate US-listed Chinese companies based on the type of data they hold. China is seeking a compromise to allow most non-state companies to open their books to US inspectors, but restrict reviews of state and tech companies that hold sensitive information, Adam Montanaro, chief investment officer for global emerging markets equities at the investment firm abrdn, saying Fortune at the beginning of this year.
Although “China has incentives to improve its relations with the United States, [their ties] have suffered serious damage in recent years. Confidence is very low, especially with the recent blowup in Taiwan,” says Ren. At the same time, US regulators have made it very clear that they want full access and compliance. There is not going to be a two-tier access system” that Beijing wants, he says.
However, Ahern argues that the exclusion of the five state-owned companies is a positive sign that Washington and Beijing may be closer to reaching an exclusion consensus. Once the Chinese state-owned companies have been delisted from Wall Street, the “remaining non-state companies have long declared they have nothing to hide” from US inspectors, says Ahern.
Still, the SEC’s delisting watch list has only grown, and the challenges for US-listed Chinese companies are more difficult. The SEC has now singled out 159 companies, including Alibaba’s e-commerce rival. jd.comgiant of social networks and blogs Weibofather of kfc yum china, and the biotech firm BeiGene, to be kicked off Wall Street if they don’t comply. Washington “clearly won’t budge an inch. There is no compromise to be had. the chinese side [must] make all concessions,” the China-focused research firm Trivium wrote in an April note.
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