For months, federal regulators have increased pressure on Beijing and Chinese companies that trade on U.S. stock exchanges to comply with American listing rules.
But on Friday, five of China’s biggest U.S.-listed, state-owned giants, valued at a collective $318 billion, announced they would exit Wall Street instead, marking an acceleration in the U.S.-China financial decoupling.
State insurer China Life Insurance, energy behemoths PetroChina and China Petroleum & Chemical Corporation, alongside Aluminum Corporation of China, and Sinopec Shanghai Petrochemical, all said Friday that they will delist from the New York Stock Exchange (NYSE), as Washington and Beijing continue to jostle over letting American inspectors audit Chinese companies. The fight could lead to hundreds of China-based companies being booted from U.S. stock exchanges.
Just in case, Chinese businesses are preparing to be kicked off of Wall Street. “The state-owned firms are seeing that the writing is on the wall for them,” Liqian Ren, director of modern alpha at investment firm WisdomTree Asset Management, told Fortune, and indicates that a bigger shift might be underway for other public China-based companies as well.
Business decisions
The U.S. and China are at loggerheads over a decades-long dispute over allowing American inspectors to audit U.S.-listed Chinese firms. The U.S.’s audit watchdog wants full access to Chinese companies’ auditors and audit papers, but China has refused, citing national security concerns. The U.S. could delist over 260 Chinese companies worth a combined $1.3 trillion by 2024 if Washington and Beijing can’t reach an agreement.
China’s securities regulator said in a Friday statement that “listings and delistings are… common in capital markets.” It added that the five state firms followed U.S. rules while listed on American stock exchanges, and that their delisting decisions were only “made out of business considerations.”
Other U.S.-listed Chinese firms could follow in the footsteps of the five state-owned enterprises (SOEs). The two remaining Chinese SOEs listed on U.S. stock exchanges—two state-linked airlines—will “definitely be considering” delisting from New York, Ren says. China’s state-run firms all hold information that Beijing deems sensitive or crucial to national security that it doesn’t want American inspectors to access, meaning that it wouldn’t come as a surprise if the remaining state firms choose to delist soon, Brendan Brendan Ahern, chief investment officer at KraneShares, a China-focused investment fund, told Fortune.
Yet this hedge isn’t limited to state firms. Other Chinese firms want to retain their U.S. listings. But they’ll ultimately “review the situation and make a strategic choice,” Ren says. For most big firms, they’ll feel that a U.S. listing is risky and opens them to being caught in the crossfire between Chinese and American regulators, especially in the face of deteriorating Sino-U.S. ties, she says.