The conflict between the US and China continues to escalate, and it doesn't show signs of slowing down anytime soon. Maybe as a way to punish China for what the US considers to be a mishandling of the virus outbreak, President Trump wants to delist the Chinese companies from the American stock exchanges.
But this move is old news, since last year in June both parties introduced a bill that forces Chinese companies to submit regulatory oversight, to be up for an audit, or they will face delisting. At that time, the move was considered a way of limiting the US companies to invest in Chinese companies, and according to Trump administration – it was all about security. The security concerns work both ways, as the Chinese authorities are well-known for their reluctance to be verified by foreign regulators.
Near the end of May, the US Senate passed a bill that forbids some Chinese companies to sell shares on the US stock exchanges. Besides the above-mentioned measures, public companies must reveal if they are owned or controlled by a foreign government. The bill came shortly after Luckin Coffee (US-listed Chinese company) underwent investigation, and it turned out that its sales of hundreds of millions of dollars were fake. As a consequence, the company got delisted from Nasdaq, and at that time, its stock price fell by more than 35% in just one day.
Foreign companies should be compliant by the Sarbanes-Oxley Act (SOX), but the Chinese companies are on the US exchanges without compliance. Therefore, President Trump wants to apply the Securities and Exchange Commission (SEC) rules on China. According to SEC, executive management and auditors have to report regarding the accuracy of a firm's books. Chinese authorities consider this to be secret information.
In almost two decades, several companies decided to be delisted rather than comply with such rules.
Overall, if the President signs the bill, companies like Alibaba, Baidu, JD.com faces delisting, alongside other 153 Chinese companies, and according to specialists, they could move to London or Hong Kong exchanges. The American market could lose access to Chinese companies, while the companies couldn’t have the prestige to be listed on one of the most important foreign exchanges.
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Sources: cnbc.com, forbes.com, reuters.com, bbc.com
