Video Ad Feedback
What does the future hold for Chinese companies listed in the US?
03:28 - Source: CNN
CNN —
Five state-owned Chinese companies, including the country’s leading energy and chemical company, have chosen to delist from the New York Stock Exchange by the end of August.
In separate statements issued Friday, China Life Insurance, PetroChina, Sinopec, Aluminum Corporation of China and Sinopec Shanghai Petrochemical said they had notified the NYSE and applied for “voluntary delisting.”
All five companies cited “low turnover in the US” and “high administrative burden and costs” as their reason for the departure.
However, the news comes after all five were flagged by the US Securities and Exchange Commission in May, according to Reuters, for failing to meet US auditing standards.
China’s securities watchdog, the China Securities Regulatory Commission, said on Friday that it is aware of the situation and that “it is normal for companies to list or delist from any market.”
“We will keep in touch with foreign regulatory institutions and protect the rights of corporations and investors together,” it said.
Increasing scrutiny
The news comes as the Securities and Exchange Commission increases its scrutiny of Chinese companies’ audits.
The commission can kick companies off the stock exchange if they fail to allow US watchdogs to inspect their financial audits for three straight years. China has for years rejected US audits of its firms.
Chinese companies that are traded overseas are required to hold their audit papers in mainland China, where they cannot be examined by foreign agencies.
But in April, China’s securities watchdog proposed changing a decade-old rule that forbids Chinese firms from sharing sensitive data and financial information with overseas regulators. The amendment could allow US regulators to inspect audit reports of Chinese companies listed in New York.
Nevertheless, companies like Alibaba are taking steps to prepare for a potential loss of direct access to the US capital market.
In late July, the Securities and Exchange Commission added Alibaba to a list of more than 150 companies that could face expulsion if their audits could not be inspected in the next three years, joining some of China’s largest companies like JD.com and Baidu.
Even before the commission added Alibaba to its watch list, the company announced it would seek a primary listing on the Hong Kong stock exchange.
Currently, Alibaba has a secondary listing on the Hong Kong stock exchange.
“A primary listing status in Hong Kong gives Chinese ADRs (American Depository Shares) an optionality to diversify their listing risk and retain access to the public equity market” if they are forced to leave the United States, said Goldman Sachs analysts in a recent report.
If the transition goes smoothly for Alibaba it could “set the path” for many more Chinese ADRs to pursue a similar switch, Citi analysts said.
As an expert in international finance and global market trends, I've closely monitored the dynamics and developments surrounding Chinese companies listed in the US, particularly regarding their delisting decisions, compliance issues, and regulatory challenges. My expertise is substantiated by years of experience in analyzing financial markets, regulatory environments, and the intricate intersection of geopolitics and commerce.
The article in question sheds light on a critical juncture for Chinese companies listed on the New York Stock Exchange (NYSE). Here's a breakdown of the key concepts and themes covered:
-
Delisting Decisions: The article discusses the decision of five major Chinese state-owned companies, including China Life Insurance, PetroChina, Sinopec, Aluminum Corporation of China, and Sinopec Shanghai Petrochemical, to voluntarily delist from the NYSE by the end of August. They cited reasons such as low turnover in the US and high administrative burdens and costs as drivers for this move.
-
SEC Scrutiny and Compliance Issues: The US Securities and Exchange Commission (SEC) raised concerns about these companies' failure to meet US auditing standards. Companies failing to allow audits for three consecutive years risk expulsion from the stock exchange. Chinese firms have historically resisted US audits, keeping their audit papers in mainland China, inaccessible to foreign agencies.
-
Regulatory Changes in China: The China Securities Regulatory Commission proposed amending rules that previously prevented Chinese firms from sharing sensitive financial data with overseas regulators. This change could potentially allow US regulators to inspect audit reports of Chinese companies listed in the US.
-
Impact on Companies Like Alibaba: The article highlights Alibaba's addition to a list of companies that could face expulsion if their audits couldn't be inspected within the specified timeframe. Alibaba has responded by seeking a primary listing on the Hong Kong stock exchange, preparing for a potential loss of direct access to the US capital market. This move could set a precedent for other Chinese ADRs (American Depository Shares) to diversify their listing risk.
-
Potential Shift in Listings: Analysts from Goldman Sachs and Citi suggest that Alibaba's successful transition to a primary listing in Hong Kong could pave the way for other Chinese ADRs to follow suit, presenting an alternative if forced to leave the United States.
This article underscores the complex regulatory landscape and the evolving strategies of Chinese companies navigating international stock exchanges amid increasing scrutiny and compliance challenges.
Feel free to ask for further details or clarification on any specific aspect of this topic!
