Delisting Chinese Firms from American Stock Markets: What Impact does it Have?

U.S. seeks to delist Chinese Stocks listed on American Stock Exchanges

Last week, the Senate passed a bill created by Democrat Senator Chris Van Hollen and Republican Senator John Kennedy which sought to delist Chinese firms that do not abide by American regulations. 

In fact, Chinese firms would be instructed to certify that they are not under the control of a foreign government.

The Public Company Accounting Oversight Board (PCAOB) will be responsible for auditing the firms for three consecutive years and if corporations are found to be under the control of a foreign government, they will be barred from every stock exchange within the United States. 

Ever since the dawn of the COVID-19 pandemic, U.S.-China tensions have been growing at an exponential rate and are fueled by ongoing trade wars, the declaration of Hong Kong not being autonomous from China, and other national security concerns. 

“The Chinese Communist Party cheats, and the Holding Foreign Companies Accountable Act would stop them from cheating on the US stock exchanges. We just want Chinese companies to play by the rules. Senator John Kennedy

The idea behind this initiative is to restrict and limit American investment into Chinese corporations and motivated by the Trump administration’s growing security concerns about the activities of these companies according to sources.

This legislation also came in light of the Luckin Coffee accounting scandal which revealed that the company had manipulated its sales figures in 2019 after being investigated by Chinese securities officials. As a result, the stock plunged by over 94% in a matter of days which cost American investors billions of dollars in losses. 

However, the legislation could have several serious consequences if passed into law. Analysts at Jefferies mentioned that “the proposed measure would completely undermine the international market and would harm the U.S.’s role as a conduit for international capital”

In fact, other stock exchanges across the world may even benefit from this as they would be able to invest in these companies. 

Nevertheless, White House economic advisor Larry Kudlow asserted that the United States needs to push for more accountability from Chinese companies to ultimately protect investor security as well as national security. 

There are currently over 150 Chinese companies listed on American stock exchanges including Alibaba Group Holdings, JD.com Inc. and Baidu Inc. which have a collective market cap worth over a trillion dollars. 

After the passing of the bill, the shares of Chinese companies fell over 2%. 

Simply banning investment into these companies can potentially affect millions of investors and institutions across the United States.

Although this piece of legislation has been passed in the Senate, it still has to pass in the House of Representatives and be signed into law by President Trump.

The Securities and Exchange Commission will host an upcoming session on July 9 to hear the views of various investors, politicians, regulators, and industry experts in regards to the current geopolitical issues of the United States.  

 

Nitya Bhatt

Equity Research Analyst

Nitya is currently studying business administration at the Schulich School of Business in Canada. During his undergraduate studies he worked in several business development, sales, and leadership roles. Nitya began investing in stocks at an early age which further grew his interest in finance and trading. He has written numerous articles related to economics and politics. However, when he is not busy writing or researching, he enjoys playing badminton competitively, reading science fiction, and hiking in the wilderness.

No Comments Yet

Comments are closed