Senate ruling biased, exposes Chinese companies to short-selling attacks
The legislation passed by the US Senate on Wednesday, which requires companies to certify that they are not owned or controlled by a foreign government, will prompt more US-listed Chinese companies to pursue relistings in the A-share market, experts said on Thursday.
The proposed Holding Foreign Companies Accountable Act also requires US-listed companies to open their books to the Public Company Accounting Oversight Board－the organization that oversees the audits of US-based public companies. Companies that are unable to meet this requirement for three consecutive years would be barred from US stock exchanges, according to the bill.
However, cross-border securities supervision and inspection of Chinese companies should be carried out by the China Securities Regulatory Commission based on Chinese laws and regulations. In this sense, the bill is in contrast to the Chinese laws, said Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology.
“The bill is basically biased. The US-listed Chinese companies may become targets for short-selling. They will thus be forced to delist or go private,” he said.
Prices of US-listed Chinese companies plunged on Wednesday after the bill was passed in the Senate. E-commerce juggernaut Alibaba fell by 0.17 percent, new energy vehicle maker Nio by 5.69 percent and emerging video-sharing platform Bilibili by 7.16 percent.
Chinese companies can still circumvent the problem by turning to international accounting firms for auditing and inspections so that they conform with US government regulations, said Dong.
More important, Chinese mainland companies can consider alternative steps like listing their shares in Hong Kong or the A-share market, to ensure their normal operations and financing, he said.
“The registration-based initial public offering mechanism first introduced in the STAR Market at the Shanghai Stock Exchange has been extended to the ChiNext at the Shenzhen bourse. The A-share market is thus more inclusive, relaxing requirements on profitability and allowing for dual-class ownership. All these can be considered the preparations for the return of Chinese companies to the A-share market,” he said.
Robin Li, chairman and CEO of Baidu Inc, told China Daily on Thursday that the company “is not so worried” about the US government’s tighter measures for foreign companies’ listing on US exchanges. The internet search giant is discussing internally relisting in other areas including Hong Kong.
“For a good company, there are many destinations for listing, and these are not limited to the US. We don’t think that the US government’s measures would have an irreparable impact on our business,” said Li.
Data from Shanghai-based market tracker Wind Info showed that 227 Chinese companies were listed on US bourses by the end of last year.
Xie Yaxuan, chief analyst of China Merchants Securities, said that the accounting scandal of Luckin Coffee has somehow led to the latest moves of the US government. But the intensified US-China trade friction is the more fundamental reason. The US has quite often resorted to trade and economic means to suppress China, he said.
“The number of Chinese companies considering public floats in the US will drop in the short term. But in the long run, we can expect to see more Chinese companies returning to the A-share market,” he said.
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