Five state-owned Chinese companies withdraw from the New York Stock Exchange after a long-running battle between US securities regulators and Chinese companies selling shares in the US is expected to. Possible future departure.
Last week, oil companies Sinopec, China Life Insurance Company, Aluminum Corporation of China Limited, PetroChina and Sinopec Shanghai Petrochemical announced they would voluntarily delist from the NYSE.
The immediate effect for an investor who purchased shares in five companies would be to exchange what are known as US traded American Depositary Receipts for shares in Hong Kong traded companies. prize. But it's less clear what that means for more investors who hold stakes in hundreds of Chinese companies listed on US exchanges.
The exit of the five companies will leave China Eastern and China Southern as the only major state-owned companies listed in the US, raising questions about whether they will eventually be delisted.
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Other potential exits
Several other large Chinese companies have already delisted or are planning to do so It seems that. Beijing-based ride-hailing company Didi was delisted earlier this year after pressure from the Chinese government. Fast food giant Yum China Holdings announced this week that it will change its current secondary stock listing in Hong Kong to a primary listing. This makes delisting easier. E-commerce giant Alibaba took the same step last month.
In a recent interview with CNBC, former NYSE President Tom Farley said that from an economic point of view, the exit of China's five state-owned enterprises was "nothing extraordinary." The company is not widely traded in the United States, he said.
But he added, "Symbolically, this is very important." Because Alibaba and he opens the door for the exit of big Chinese companies like JD.com, which do a lot of business in the US.
"This is what China is saying: 'Hey, these are gone. Next is Alibaba and he's JD.com.' It's going to be a big deal, both economically and symbolically. I would," Farley said.
Alibaba's market capitalization, or cumulative value of outstanding shares, exceeds $232 billion. His JD.com, another e-commerce company, has a market capitalization of over $87 billion.
Conflicts over Access Rights
At its core is the debate about disclosure. U.S. securities regulators have a responsibility to ensure that retail investors have the information they need to make well-informed decisions. We ask that you provide extensive information about
In particular, the Public Company Accounting Oversight Board (PCAOB) requires companies to provide full access to auditors' working papers. Created in the aftermath of several major accounting scandals, including Enron in 2001 and WorldCom in 2002, the PCAOB's mandate is that well-established corporate accounting rules are upheld by companies that sell their shares publicly. to make sure.
However, the Chinese government has long resisted the requirement to turn over audit documentation to the US government. A major complaint is that many companies own data that the Beijing government deems too sensitive to share with other governments.
This caused a stalemate between the PCAOB and Chinese officials.
According to the agency itself, “The PCAOB spent considerable time and resources negotiating memorandums of understanding (MOUs) with Chinese authorities for enforcement cooperation. Since signing the MOU, China's cooperation has not been sufficient for the PCAOB to obtain timely access to relevant documents and testimony necessary to carry out its mission in line with the core principles above. The consultations that took place did not result in any improvement.”
Mr. Farley, former president of the New York Stock Exchange, said that Chinese companies were forced to leave the US market, the world's largest source of investment capital. He said it would hurt to withdraw, but it could still happen.
"This controversy may eventually get out of hand," he told CNBC.
Confidentiality is questioned
Frank Tian Xie, a professor of business administration at the University of South Carolina Aiken, told VOA that the Chinese government said it may have security concerns. There are other reasons why Beijing has resisted complying with U.S. rules, as regulators have limited access to corporate data.
Xie said it was an "open secret" that Chinese companies do not always comply with accounting rules and that enforcement within China is lax. Handing over their business records to U.S. authorities would spell "disaster" for many Chinese companies, Xie said.
"They simply cannot withstand further scrutiny by US authorities," he said.
However, he added that he does not expect Chinese companies to see a large outflow from the US stock market.
"There are good and honest Chinese companies run by honest people," he said. If Chinese authorities allow us to comply with US regulations, we will try to maintain US listings.
“Chinese companies want to list their shares on US exchanges. Mr Xie said.
Long timeline
Last December, the Securities and Exchange Commission passed new rules that allow it to ban trading in non-compliant stocks. The struggle intensified after the finalization of the Chinese company.
The new rule was created to implement the Foreign Company Liability Retention Act of 2020, which allows Congress to ban Chinese companies doing business in the United States from being controlled by the Chinese government. and enforce compliance with transparency rules.
As of August 7, the SEC placed 162 Chinese companies on its list of companies at risk of being banned for non-compliance with the law.
An actual ban will only come after the company finds that he has violated reporting requirements for three consecutive years, starting in 2023.
