A number of Chinese tech stocks have plunged after the Securities and Exchange Commission named five Chinese companies at risk of delisting if they fail to comply with US auditing rules by 2024.
The SEC announced yesterday that ACM Research, BeiGene, Hutchmed, Yum China Holdings, and Zai Lab are all at risk of removal from the American stock markets unless they comply with requirements set out in the Holding Foreign Companies Accountable Act.
The legislation, passed in 2020, requires foreign companies listed in the US to submit an audit for review. However, Chinese law makes it practically impossible for firms to comply with the legislation as it requires all relevant paperwork to be held on the Chinese mainland, presenting a major obstacle for the 200+ Chinese companies listed in the US. Analysts expect the vast majority if not all of the US-listed Chinese firms to end up as targets for delisting.
Naturally the news saw major losses for the named companies, but the ripples extended well beyond the five firms and were felt across the Chinese business sector. Ecommerce giant Alibaba saw losses of 5% and 7.9% on its Hong Kong and US listings respectively, whilst rival JD.com suffered even more, losing 11% in Hong Kong after closing 16% lower on Wall Street.
The Nasdaq Golden Dragon China Index, an index tracking Chinese companies trading in the US, was down 10% in its biggest drop since 2008 as investors worried about who might be next to be added to the SEC’s list.
Should the threatened delistings go ahead this doesn’t mean US investors will lose access to Chinese stocks. A large number of companies already have secondary listings in Hong Kong, having been prompted by escalating US-China tensions prior to this latest development, four of the five firms named in yesterday’s announcement being amongst them. If the SEC follows through with threats to remove listings there is no doubt that the remaining companies will follow suit.