What Happens If Chinese Firms Are Kicked Out Of The U.S. Stock Market
An important battle is developing between U.S. financial regulators and their Chinese counterparts. At stake are hundreds of Chinese public companies with over
one trillion dollars worth of shares trading in the U.S. that are threatened with “delisting” from U.S. stock markets. That is, they may be kicked off the New York Stock Exchange and NASDAQ. The headlines have it that the Chinese companies have cheated, somehow. Colluding with Beijing, and helped by the inadvertence of U.S. regulators, they have evaded and avoided compliance with regulations that apply to
all American public companies, to
almostall foreign companies except the Chinese, and which
should apply to the Chinese firms trading on exchanges here. And to say that they “should apply” is not to state a goal or an aspiration; it is a straight reading of
settled U.S. law. The rhetoric is fierce – there are “rogues” and “frauds” and “no level playing field,” and “billions in losses for American investors,” and of course lots of “China this and China that” - as here, from
a joint press release last year by two leading U.S. Senators (Rep & Dem):
- “‘The current failure of China to comply with our laws and play by the same rules as everyone else puts American investors and the credibility of our markets at risk…’ the senators write. ‘The fact that China stands alone in its noncompliance is yet another example of how it fails to play by the same rules as other countries. China’s failure to comply with our disclosure laws has already impacted investor confidence and the integrity of our financial markets.’”
A complication in this story involves the changing situation in Hong Kong — for now still the world’s third largest financial market – but under threat from Beijing’s new security laws. In the back and forth debate between the Cassandras predicting Hong Kong’s impending loss of its status as a premier financial center, and the purveyors of Hong Kong Happy Talk who see only a brighter future for the city under the CCP, one emerging theme is the idea that “delisting” Chinese companies in the U.S. will drive them all to “secondary listing” in Hong Kong – with
gobs of moneyfalling out of the South China skies. Even
those who should know better are caught up in the merry outcry:
- “Delisting…would be a victory for Hong Kong, post-National Security Law. The market, increasingly Chinese-dominated, would welcome the additional hundreds of billions of dollars in market capitalization that U.S.-listed Chinese companies could bring.”
This is fantasy. The consequences of a mass delisting of Chinese companies here – if it comes to that – will cost these firms, and China, and Hong Kong, dearly. But to understand why, and what this really means, we need to step back and ask basic questions:
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