US bill aiming to delist Chinese companies could claim American investors, businesses as unintended victims

Name: Hong Kong stocks will be 'fairly volatile' amid coronavirus, US-China tensions, says analyst
Uploaded: 2020-06-28T22:00:09.000Z
Duration: 7 min 16 s
Description: Hong Kong stocks will be 'fairly volatile' amid coronavirus, US-China tensions, says analyst

If Chinese firms continue their exit from US exchanges, funds will lose easy access to shares of companies in the world’s second-largest economy

The Holding Foreign Companies Accountable Act would require foreign companies to submit audits for inspection, which Beijing has long refused to do

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The Holding Foreign Companies Accountable Act would require foreign companies to submit audits for inspection, which Beijing has long refused to do. Illustration: Dennis Yip

Jodi Xu Klein

Published: 6:00am, 29 Jun 2020Updated: 2:13pm, 30 Jun 2020

Sweeping legislation that could remove publicly traded Chinese companies from US stock exchanges has the potential to trip up businesses and investors at home as Chinese firms move to other countries for capital.

The bill – the Holding Foreign Companies Accountable Act – aims to address a thorny issue US securities regulators have had with Beijing for decades: its refusal to allow audit inspections of their companies. If it becomes law, Chinese companies will be required to comply with the rules or face being delisted, which would put US$1.3 trillion of US-listed Chinese firms, including behemoths Alibaba Group and Tencent, at risk of losing access to the world’s largest capital markets.

Policy watchers and investors, however, said domestic businesses and investment funds could become unintended victims if Chinese companies begin to leave the US as a result.

“While it is going to hurt China, is it going to hurt it enough for the government to agree to the changes? That is unclear,” said Anna Ashton, senior director of government affairs at the US-China Business Council. It is yet “another instance among many [that] our approach against China wasn’t completely thought through”.

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Hong Kong stocks will be 'fairly volatile' amid coronavirus, US-China tensions, says analyst

The bill passed the US Senate by unanimous consent on May 20 and awaits a vote in the House of Representatives. Under the bill, failure to provide information for three straight years would lead to trading bans of the shares.

For US fund managers who actively allocate capital at BlackRock, T Rowe Price and Vanguard – which collectively invest tens of billions of dollars in Chinese companies – it would mean losing easy access to companies in an economy that, despite a slowdown and the coronavirus pandemic, still grows at a faster rate than any other in the world.