Those exposed to Chinese ADRs, whether U.S.-listed Chinese company CEOs or equity strategists in the China market, are contemplating whether the U.S. will potentially delist Chinese companies from its stock exchanges.
Several of China’s largest companies, such as JD.com (ranked 47th on the Fortune Global 500), Alibaba (ranked 70th), and PDD Holdings (ranked 442nd), are traded in the U.S. These companies, alongside smaller firms, face a potential threat due to a revived trade war initiated by U.S. President Donald Trump.
Recently, Republican members of Congress, including Representative John Moolenaar of the House Select Committee on the Chinese Communist Party, expressed concerns to SEC Chair Paul Atkins in a letter. The letter highlighted apprehensions about the continued presence of Chinese companies on U.S. stock exchanges, mentioning both major players like Alibaba and JD.com, as well as smaller startups such as Xpeng and Pony.AI.
Concerns about possible delisting have been escalating since late February when Trump reignited the threat within his “America First Investment Plan,” aiming to assess compliance with U.S. auditing standards and investigate the listing frameworks these companies use.
Officials have not ruled out action against these companies, with Treasury Secretary Scott Bessent stating that “everything is on the table” in a mid-April interview.
Sandeep Rao from Leverage Shares notes a significant rise in the threat. The NASDAQ Golden Dragon China Index, which tracks Chinese companies in the U.S., has decreased by about 7% since “Liberation Day,” whereas Hong Kong’s Hang Seng Tech Index saw a 4.6% decline.
Chinese firms have traditionally leveraged U.S. markets for capital, exemplified by Alibaba’s $25 billion IPO on the NYSE in 2014. According to the South China Morning Post, 286 Chinese companies are currently listed on U.S. exchanges, valued at $1.1 trillion collectively.
U.S. investors have criticized the auditing standards of Chinese firms, as Chinese officials often restrict access citing national security, despite U.S. regulations. The 2020 revelation of sales inflation by Luckin Coffee led to the Holding Foreign Companies Accountable Act, mandating audit accessibility or risk of delisting.
In 2022, an agreement allowed U.S. regulators access to audit documents in Hong Kong, easing delisting fears and soothing investor concerns. Nevertheless, this prompted U.S.-listed Chinese firms to explore secondary listings in Hong Kong. Alibaba upgraded its listing to a primary one, thus allowing access to mainland Chinese investors via Southbound Connect.
Rao indicates that some investors are shifting holdings from U.S. tickers to Hong Kong due to delisting threats.
Mid-April assessments by Goldman Sachs indicate that U.S. investors hold approximately $830 billion in Chinese company shares across various markets, with $250 billion in Chinese ADRs. According to Cameron Chui of JPMorgan Private Bank, holdings by U.S. investors have significantly decreased over the past five years, reducing delisting risks.
Rao suggests that even if delisted, investors might still trade these companies on the U.S. OTC market, similar to Tencent. Meanwhile, companies like Pony.ai and Geely Auto are contemplating strategic shifts, such as secondary listings in Hong Kong.
Goldman Sachs identified 27 U.S.-listed Chinese firms potentially eligible for Hong Kong listings, including PDD and Futu. Despite geopolitical tensions, some firms, like Chinese tea chain Chagee, have pursued U.S. listings, raising $411 million in a recent Nasdaq IPO.
Hong Kong emerges as a potentially attractive trading hub, with surging investments from mainland China, especially in tech sectors. The city is experiencing an IPO resurgence, as companies seek to attract global capital through overseas listings. Upcoming IPOs, such as CATL’s anticipated $5 billion raise, underscore Hong Kong’s growing significance, despite its liquidity differences compared to New York.
