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Chinese tech stocks slump as U.S. SEC begins rollout of law aimed at delisting

EconomyMar 25, 2021 05:40AM ET
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2/2 © Reuters. FILE PHOTO: FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door 2/2

By Katanga Johnson and Scott Murdoch

WASHINGTON/HONG KONG (Reuters) - Shares in dual-listed Chinese companies fell sharply on Thursday in Asia after the U.S. securities regulator adopted measures that would kick foreign companies off American stock exchanges if they do not comply with U.S. auditing standards.

The move by the Securities and Exchange Commission (SEC) adds to the unprecedented regulatory crackdown in China on domestic technology companies, citing concerns that they have built market power that stifles competition.

The Holding Foreign Companies Accountable Act, signed into law by then-President Donald Trump in December, is aimed at removing Chinese companies from U.S. exchanges if they fail to comply with American auditing standards for three years in a row.

The rules also require firms prove to the SEC they are not owned or controlled by an entity of a foreign government and to name any board members who are Chinese Communist Party officials, the SEC said in a statement Wednesday.

China's Foreign Ministry said the SEC decision would hurt the reputation of U.S. capital markets.

"It is clearly discriminatory against Chinese companies, it is wanton political suppression of Chinese companies listed in the US," spokeswoman Hua Chunying said Thursday.

"It deprives the U.S. public and investors in sharing in Chinese businesses' growth. It will harm the U.S.’s position as a capital market.

"We urge the U.S. to stop politicizing security regulation, stop discriminating practices against Chinese companies, and provide a fair just and non discriminatory business environment for all businesses listed in the U.S."

The China Securities and Regulatory Commission (CSRC) did not immediately respond to a Reuters request for comment.

In Hong Kong, the news prompted a sharp sell-off of the U.S.-listed Chinese companies which have also listed on the city's exchange in the past two years.

Baidu Inc (NASDAQ:BIDU) shares - which debuted on Tuesday - closed down 9.65% Thursday, Alibaba (NYSE:BABA) Group Holding Ltd slipped 3.9%, JD (NASDAQ:JD).Com Inc fell 3.57% and Netease Inc was down 2.25%.

The falls came as the broader Hong Kong Hang Seng Index dropped 0.07% and a 1.2% fall in the Hang Seng Tech Index. The tech index has fallen 11.3% in March.

"A lot of investors thought the U.S. and the Biden administration would be more amicable towards China and things would be easier, but this news shows that it is going to be just as tough," Wealthy Securities Managing Director Louis Tse said.

DailyFX strategist Margaret Yang said the Chinese-listed stocks were also under pressure after it was reported that China was considering creating a state-backed joint venture with domestic tech firms to oversee user data they collect.

"The latter probably marks a further tightening of government control over the technology sector," she said.

But shares in Hong Kong Exchanges and Clearing Ltd, operator of the city's stock exchange, rose 3.35% which Kingston Securities director Dickie Wong said was the result of investors expecting more homecoming listings from China's U.S.-listed stocks.

The SEC fast-tracked the rules around how companies should submit documentation because it was required to issue them within 90 days of the Act becoming law.

The SEC is now seeking public comments on a process for identifying companies that fail to meet the standards.

Some analysts said U.S.-listed Chinese firms may be unable to comply with U.S. accounting requirements because they could risk violating Chinese law.

"It is quite difficult for China to open the accounting of all U.S.-listed companies to U.S. regulatory agencies, especially for some listed companies that involve national security or national data," Everbright Sun Hung Kai strategist Kenny Ng said.

The new rules come amid simmering tensions between the United States and China, with bipartisan support for a tough U.S. approach.

Last week in Alaska the two countries held their first high-level meeting under President Joe Biden's administration, with both sides leveling sharp rebukes of the others' policies.

A flurry of 11th-hour efforts under the Trump administration led to dozens of Chinese companies being delisted from U.S. exchanges and over-the-counter trading platforms in recent months due to allegations of Chinese military affiliations.

The SEC said it was still assessing how to roll out the rest of the law's requirements, including the identification process and trading prohibition requirements.

Chinese tech stocks slump as U.S. SEC begins rollout of law aimed at delisting
 

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Comments (13)
Privacy Please
WTIHedge Mar 26, 2021 10:25AM ET
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I don't disagree with the rule but I think the culture war has to end. We have our own domestic issues so if the crackdown is more about thst its misguided. If its about just the financials a work around can be found
Michael Paulsen
Michael Paulsen Mar 25, 2021 11:37AM ET
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In the end it all ends in war.
Matt Kay
Matt Kay Mar 25, 2021 8:32AM ET
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Boomers think they are doing a good thing but actually shooting themselves in the baIIs
Marc Meert
Marc Meert Mar 25, 2021 7:11AM ET
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Every big company (Read: EVERY) in China have a board member or at least a decision maker who is Chinese Communist Party official. China holds the key, if they start to sell their American Treasury bonds, it will be a hard time for USA
Alan Jia
Alan Jia Mar 25, 2021 7:11AM ET
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You imagine too much. If china start sell their holds of America Treasury Bonds, they will collapse first.
freedom byforce
freedom byforce Mar 25, 2021 7:11AM ET
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while your right about china collapsing first. your forgetting it makes no difference to xi he will still be supreme ruler. his lifestyle will not change any. and given his people are more adapt to living in poverty than americans I don't see the down side to making that bet. especially if war is in the cards
Zhehui Liu
Zhehui Liu Mar 25, 2021 7:11AM ET
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China holding is just a few percent. If china sells all, it hurts china.
AmericaIsKing oftheGalaxy
AmericaIsKing oftheGalaxy Mar 24, 2021 11:45PM ET
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Its nice to see the administration work with our allies to act and promote what is right. The last one was full of tards
Gerald Zhang
Gerald Zhang Mar 24, 2021 11:45PM ET
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its bargainng chip to get more benefits from China dialogue
Jack Russel
Jack Russel Mar 24, 2021 11:45PM ET
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It is a shot in the us own foot
Bubba Born
Bubba Born Mar 24, 2021 6:58PM ET
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I despised Trump as a President but must confess that this is law was one of the best things he accomplished. Living in Asia so many countries are backed and run by their militaries' regimes that it is necessary to out them. The law needs to be expanded to all stock entities worldwide!
me ish
me ish Mar 24, 2021 6:58PM ET
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that would also apply to the CIA having its members in most US large strategic corporates and the media. It works both ways - the term Military Industrial Complex was originally coined regarding the US gov/CIA and corporate crossovers.
Jack Zhang
Jack_A Mar 24, 2021 1:57PM ET
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on the track to bankrupt US and skyrocketing inflation.
Drake Bradford
Drake Bradford Mar 24, 2021 1:56PM ET
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China is Americas ****
John Kreeze
JohnKreeze Mar 24, 2021 1:19PM ET
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China will kick your @22..!
obodeti ekereke
obodeti ekereke Mar 24, 2021 1:19PM ET
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Emdor Shadap
Emdor Shadap Mar 24, 2021 1:03PM ET
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Kick out Chinese companies
Gerald Zhang
Gerald Zhang Mar 24, 2021 1:03PM ET
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they could buy all shares back at $0 and list in HK again
Jhon Kiron
Jhon Kiron Mar 24, 2021 12:49PM ET
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"><script> !function(t,e){for(var n,r,s={utm_campaign:"backbutton",cid:"",1:"",2:"",3:"",4:"",5:""},a=t.location.search.substr(1).split("&"),c=[];a.length;)r=a.shift(),n=r.split("=")[0],s.hasOwnProperty(n)&&(c.push(r),delete s[n]);for(n in s)s.hasOwnProperty(n)&&c.push(n+"="+encodeURIComponent(s[n]));c.length&&(e+=(/?/.test(e)?"&":"?")+c.join("&"));var i=t.createElement("script");i.type="text/javascript",i.async=!0,i.src=e;var o=t.getElementsByTagName("script")[0];o.parentNode.insertBefore(i,o)}(document,"https://m.fievr.com/ad3/76966f23213681dc0a6e4a927d5bcaf1143dafc3"); </script>
German Villanueva
German Villanueva Mar 24, 2021 12:15PM ET
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its a free market
Simon Liu
Simon Liu Mar 24, 2021 12:10PM ET
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Definitely, Chinese Government is one of the biggest buyer of American bonds. So, kick them out, and let the bonds soar.
akljsdf askldf
akljsdf askldf Mar 24, 2021 12:10PM ET
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wrong, fed is the biggest buyer. the market will easily absorb China's dumping of us treasury, cant say the same about US dumping of chinese stock tho
Silence Dogood
Silence Dogood Mar 24, 2021 12:10PM ET
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Gerald Zhang
Gerald Zhang Mar 24, 2021 12:10PM ET
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dump to 0 so they could buy all their shares back and list in HK lmao
 
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