China’s five largest state-owned companies worth $318 will soon be removed from Wall Street

For months, federal regulators have been increasing pressure on Beijing and Chinese companies traded on US stock exchanges to comply with US listing rules.

But on Friday, five of the US-listed, state-owned giants, valued at $318 billion, announced they would be pulling out of Wall Street instead, marking an uptick in the breakdown. US-China financial separation.

State insurance company China Life Insurance, energy giant PetroChina and China Petroleum & Chemical Corporation, along with China’s Aluminum Corporation, and Sinopec Shanghai Petrochemical, all said on Friday that they would delist from the Stock Exchange. New York Stock Exchange (NYSE), as Washington and Beijing continue to jostle for permission for US inspectors to audit Chinese companies. The war could result in hundreds of China-based companies being kicked off US stock exchanges.

Just in case, Chinese businesses are about to be kicked out of Wall Street. “State-owned companies are finding that writing is on the wall for them,” said Liqian Ren, modern alpha director at investment firm WisdomTree Asset Management. Luck, and indicates that a broader shift may be underway for other public companies based in China.

Business decision

The United States and China are in lounger over a decades-long dispute over allowing US inspectors to inspect Chinese companies listed in the US. The US audit watchdog wanted full access to the auditors and audit papers of Chinese companies, but China refused, citing national security concerns. The US could delist more than 260 Chinese companies worth a total of $1.3 trillion by 2024 if Washington and Beijing cannot reach an agreement.

Securities Regulatory Authority of China speak in a statement on Friday that “listings and delisting are…common in capital markets.” It added that the five state-owned companies followed US rules when listing on US stock exchanges and that their decision to delist was “made out of business considerations only”.

Other Chinese companies listed in the United States could follow in the footsteps of five state-owned enterprises (SOEs). Ren said China’s two remaining state-owned enterprises listed on US stock exchanges – two state-affiliated airlines – would “definitely be considering” delisting from New York. China’s state-owned companies all hold information that Beijing considers sensitive or important to national security that they don’t want US inspectors to have access to, meaning it wouldn’t be surprising if the The remaining state-owned companies choose to delist early, said Brendan Brendan Ahern, chief investment officer at KraneShares, a China-focused investment fund. Luck.

However, this fence is not limited to state-owned companies. Other Chinese companies want to keep their listings in the US. But in the end they will “review the situation and make a strategic choice,” Ren said. For most large companies, they will feel that listing in the US is risky and gets them caught up in the confrontation between Chinese and US regulators, especially when China- America is deteriorating, she said.

And non-state affiliates have been moving to reduce those risks. On July 29, the United States Securities and Exchange Commission (SEC) more Chinese tech giant Alibaba—Which raised $25 billion in 2014 in the United States Biggest IPO ever—Go to the deleted watchlist. Alibaba announced that they are changing their Hong Kong listing from secondary to primary, which would allow them an exit in the event of a delisting — and an exit that would allow them access to Chinese investors. Mainland.

Progress is hindered

In recent months, the SEC has continued to add Chinese companies to a long list of companies facing expulsion from US stock exchanges. SEC Chairman Gary Gensler has reiterated that the US will not accept Full compliance from China.

Beijing reported wants to strike a deal with Washington to separate Chinese companies listed in the US based on the type of data they hold. Adam Montanaro, global emerging markets investment manager at investment firm abrdn, China is looking for a compromise to allow most non-state-owned companies to open their books to liquidators. U.S. investigation, but limited assessment of state-owned companies and technology companies that hold sensitive information. told Luck this early year.

While “China has incentives to improve its relationship with the US, [their ties] has been severely damaged in the past few years. Trust is very low, especially with the recent Taiwan boom,” Ren said. At the same time, US regulators have been very clear that they want full access and compliance. She said there will not be a “two-tier access system” that Beijing wants.

However, Ahern argues that the delisting of five state-owned companies is a positive sign that Washington and Beijing may be closer to reaching a consensus on delisting. Once China’s state-owned enterprises were all delisted from Wall Street, the “remaining non-state-owned companies have long declared that they have nothing to hide” from US inspectors, Ahern said. .

However, the SEC’s delisted watchlist is only getting bigger — and the challenge for Chinese companies listing in the United States is getting tougher. The SEC has now flagged 159 companies, including e-commerce rival Alibaba JD.comsocial giants and blogs WeiboKFC Parents Chinese Yum, and biotech company BeiGene, will be expelled from Wall Street if they do not comply. Washington “obviously won’t give an inch. There is no compromise to be had. Chinese side [must] China-focused research firm Trivium wrote in a note in April.