Chinese Firms Fear Delisting From U.S. Stock Exchanges Amid Regulatory Pressure

Heightened regulatory scrutiny of Chinese firms listed on the US stock exchanges has ignited delisting worries, which includes Alibaba and other Chinese companies.

A broad “everything is on the table” comment from U.S. Treasury Secretary Scott Bessent on April 9 stoked uncertainty on Wall Street as hundreds of billions of dollars may flow out of the country.

Notably, as per a new version of the law made in 2020, the U.S. the Securities and Exchange Commission has the power to delist a Chinese company if it’s non-compliant with audit requests for two straight years. Paul Atkins, sworn on Monday as SEC chairman, indicated during a hearing last month that he would uphold that process for scrutinizing U.S.-listed Chinese stocks.

“In an extreme scenario, U.S. investors may have to liquidate US$800bn worth of holdings in Chinese stocks if they are banned from investing in Chinese securities,” Goldman Sachs said in a note last week.

It predicted that Chinese investors may be forced to sell their U.S. financial assets, valued at roughly $370 billion in stocks and $1.3 trillion in bonds.

KraneShares, which operates a popular $5.9 billion U.S. exchange-traded fund tracking Chinese stocks, informed its clients that delisting of Chinese firms was a ‘low probability.’ However, during earlier round of delisting fears in 2022, it shifted bulk of its KraneShares CSI

China Internet ETF (KWEB) and holdings to the Hong Kong-traded shares of U.S.-listed Chinese companies.

White House rule

U.S. President Donald Trump’s “America First Investment Policy” memo published in late February urged for a review of US’ investments in Chinese firms, while calling for a renewed scrutiny of publicly traded Chinese companies.

Winston Ma, adjunct professor at NYU School of Law said that the memo mandates government agencies including the SEC, “to enforce existing rules and create new rules” relating to U.S.-listed Chinese companies.

Ma, author of “The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace,” said that if regulators act now, they could use a fiscal reporting period ending April 2025 as year one, which means that the year two would end in 2026, fulfilling the “two year” compliance period necessary for delisting. “Delisting could come faster than you think,” he said.

Political Momentum

Late last week, the House Select Committee on China sent letters to JPMorgan Chase CEO Jamie Dimon and Bank of America CEO Brian Moynihan, pressuring the banks to withdraw from underwriting the Hong Kong IPO of Chinese battery giant Contemporary Amperex Technology. JPMorgan declined to comment, while Bank of America did not respond.

Trump’s recent tiff with Harvard also means increased scrutiny on how U.S. universities’ endowment funds have made billions from their Chinese investments.

The House committee previously cited research from U.S. advocacy group Future Union on how U.S. pension funds and university endowments have invested in China.

“Atkins is under pressure to take an assertive stand against decades of duplicitous double standards,” Future Union Executive Director Andrew King said in an email. He is also managing partner at San Francisco-based venture capital firm Bastille.

“The delisting is overdue, and China overplayed its hand by stonewalling regulators and flaunting cases like Luckin Coffee fraud with inaction,” he said. “Now they are going to lose their path to secondary funding without oversight.”