Chinese companies on the US stock exchanges in the context of aggravation of Sino-American relations: the relationship of the national markets, delisting risks and possible scenarios

Abstract

The article analyzes the relationship between national stock markets of China and the United States which results in conclusion about prevalence of indirect psychological connection between them. It also considers the issues related to future prospects of Chinese companies on the US stock exchanges and the risk of their delisting in the context of sharp aggravation of Sino-American relations and active actions of the US Securities and Exchange Commission (SEC), aimed at tightening the requirements for auditing, financial reporting and data disclosure by the US-listed foreign companies. The process of forming a new regulatory framework for delisting Chinese companies with adoption of the core Holding Financial Companies Accountable Act (HFCAA) is disclosed. The IPO scheme by Chinese companies through variable interest entities (VIE) is reflected, and related risks are identified. The competitive potential of national stock exchanges in terms of attracting Chinese IPOs is analyzed with conclusion about significantly stricter requirements and lengthy procedures on Chinese exchanges in comparison with American ones. It is assumed that presently the mass delisting of Chinese companies from American exchanges seems an unlikely scenario. At the same time, the full range of delisting scenarios is considered from the most preferred option for investors (conversion of American securities into shares on Chinese exchanges) to the worst (freezing of shares for an indefinite period). The article was prepared within the project “Post-crisis world order: challenges and technologies, competition and cooperation” supported by the grant from Ministry of Science and Higher Education of the Russian Federation program for research projects in priority areas of scientific and technological development (Agreement № 075-15-2020-783).