SEC's threat to delist more Chinese firms will dent reputations of US capital market
Published: Apr 13, 2022 09:32 PM
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, the United States, on March 10, 2022.Photo:Xinhua

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, the United States, on March 10, 2022.Photo:Xinhua

The move by the US Securities and Exchange Commission (SEC) on Tuesday to add 12 more US-traded Chinese companies to a register for possible delisting isn't a positive response to the momentum between the two countries' regulators to resolve their audit dispute, and it will be detrimental to investor confidence in the US, a Chinese securities expert said on Wednesday.

The SEC announced a fourth batch of 12 firms, including, Connect Biopharma and Daqo New Energy - companies that are components of the NASDAQ Golden Dragon China Index.

Experts said the move, which came as China's securities regulator was taking pragmatic and concrete steps toward bilateral audit cooperation, was negative.

Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, said the new announcements and the expansion of the list came as the Chinese side was making adjustments to rules governing overseas listings, and this can't be seen as positive feedback on the part of the US.

Companies on the list face the risk of delisting from the US stock exchanges following the implementation of the Holding Foreign Companies Accountable Act.

The China Securities Regulatory Commission published a draft regulatory document in early April and said it would revise the confidentiality rules involving offshore listings. 

The move was seen as a step that could remove a legal hurdle to the company-audit standoff and a show of faith by China to work on the issue through consultation.

"The move by the SEC, which has added more firms to the list, will cast a shadow on market confidence, making it hard for [mainly US] investors to evaluate the companies," Dong said. 

Chen Da, chief advisor with Shanghai-based HHSC Capital, told the Global Times on Wednesday that as more and more US-traded Chinese firms are placed on the list, the market's reaction has become less volatile.

"There had been hopes that some companies may eventually avoid being delisted, but such hopes are fading with the rollout of the fourth batch," Chen said.

The first batch of five companies put on the list on March 8 was on a "conclusive list" as of Wednesday. Three batches of companies were announced in March. 

In previous batches, companies including Chinese social media platform Weibo, Baidu, iQIYI and Futu Holdings were announced. The total number of Chinese firms on the list has now risen to 23.

There was little reaction in Chinese equity markets on Wednesday. The Shanghai benchmark index was down 0.82 percent while Hong Kong's Hang Seng Index edged up 0.26 percent to 21,374.37 points.

Experts said that if a company is on the list, it means genuine risks for the investors, even the final delisting won't occur until 2024. Companies on the list will ramp up their efforts to list elsewhere.

Sohu said before US market trading began on Wednesday that it has no plan to dispute the provisional identification and it has been exploring options in view of a possible delisting from the NASDAQ, though no decision has been formed.

Chinese question-and-answer website Zhihu Inc began its dual listing effort in Hong Kong this week. Zhihu was traded in New York in March 2021.

Securities regulators have been negotiating on the audit issue. Yi Huiman, chairman of the China Securities Regulatory Commission, said during a meeting over the weekend that China will accelerate the launch of new rules for overseas listings, and maintain a smooth and open flow for the channel.