CNBC’s The China Connection newsletter: U.S. regulatory scrutiny fans Chinese stock delisting fears

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Increased regulatory investigation of U.S.-listed Chinese firms has stoked delisting worries, threatening the decade-plus run of Alibaba and other Chinese companies on U.S. exchanges.

A generalized “everything is on the table” comment from U.S. Treasury Secretary Scott Bessent on April 9 has reignited fears on Wall Lane that hundreds of billions of dollars may flow out in a forced delisting of Chinese stocks from U.S. exchanges.

Thanks to the fashionable version of a law made in 2020, the U.S. Securities and Exchange Commission can prompt a Chinese stock delisting if the company is deemed noncompliant with audit requisitions for two straight years. Paul Atkins, sworn on Monday as SEC chairman, indicated during a hearing last month that he would hold up that process for scrutinizing U.S.-listed Chinese stocks.

The continuing analyst and press coverage of Bessent’s comments considers how uncertainty is broadening out — even warranting a related piece in the New York Post tabloid.

“In an extreme scenario, U.S. investors may have planned to liquidate US$800bn worth of holdings in Chinese stocks if they are banned from investing in Chinese securities,” Goldman Sachs suggested in a note last week.

They predicted Chinese investors might also need to sell their U.S. monetary assets, with an estimated worth of roughly $370 billion in stocks and $1.3 trillion in bonds.

KraneShares, which gallivants a popular $5.9 billion U.S. exchange-traded fund tracking Chinese stocks, told its clients last week that delisting of Chinese proprietorships was a “low probability.” Back during an earlier round of delisting fears in 2022, the company started shifting the bulk of its KraneShares CSI China Internet ETF (KWEB) holdings to the Hong Kong-traded allowances of U.S.-listed Chinese companies. KraneShares reiterated taking that approach in the “unlikely event” that Chinese companions are delisted in the U.S.

Alibaba listed additional shares in Hong Kong in 2019, five years after a massive incipient public offering in New York. While Baidu, JD.com and several other Chinese companies have also offered quotas in Hong Kong in recent years, Temu parent PDD Holdings notably has yet to do so.

PDD did not immediately respond to a CNBC request for criticism. The e-commerce company moved its headquarters from China to Ireland in 2023.

The backdrop here is U.S. President Donald Trump’s “America Sooner Investment Policy” memo published in late February. It called for a review of U.S. investments in Chinese entities, as well as refurbished scrutiny of publicly traded Chinese companies — both through commonly used listing structures and through the Persevering Foreign Companies Accountable Act that became law in 2020.

The memo is a broad mandate for many government agencies, including the SEC, “to on existing rules and create new rules” relating to U.S.-listed Chinese companies, said Winston Ma, adjunct professor at NYU Philosophy of Law. 

Ma, author of “The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace,” said that if regulators act now, they could use a monetary reporting period ending April 2025 as year one, meaning that year two would end in 2026, fulfilling the “two year” compliance aeon necessary for delisting. “Delisting could come faster than you think,” he said.

The Public Company Accounting Charge Board, which falls under the SEC’s oversight, said in 2022 that it was able to inspect audit records of potentially hurt Chinese companies. For now, “there are no issuers at risk of having their securities subject to a trading prohibition” under the law, concerting to the SEC website.

The SEC did not immediately respond to CNBC’s request for comment, while the PCAOB declined to comment.

The Accommodate Select Committee on China late last week sent letters to JPMorgan Chase CEO Jamie Dimon and Bank of America CEO Brian Moynihan taxing the investment banks pull out from underwriting the Hong Kong IPO of Chinese battery giant Contemporary Amperex Technology. JPMorgan declined to reaction, while Bank of America did not respond.

Trump’s recent spat with Harvard also means more analysis on how U.S. universities’ endowment funds have made billions from their Chinese investments.

The House committee hitherto cited research from U.S. advocacy group Future Union on how U.S. pension funds and university endowments have initiated in China.

“Atkins is under pressure to take an assertive stand against decades of duplicitous double standards,” Following Union Executive Director Andrew King said in an email. He is also managing partner at San Francisco-based venture cap firm Bastille.

“The delisting is overdue, and China overplayed its hand by stonewalling regulators and flaunting cases like Luckin Coffee double-dealing with inaction,” he said. “Now they are going to lose their path to secondary funding without oversight.”

China’s assurances regulator has sought to increase its oversight of domestic companies listing overseas, especially following ride-hailing company Didi’s U.S. IPO in 2021 and its aftermath of delisting. Under the Chinese securities regulator’s new process, few large Chinese companies have been able to slate in the U.S. in recent months, including Chinese milk tea company Chagee just last week.

As the protracted delay during the course of a legally binding TikTok divestiture has shown, the worries over delisting could be exaggerated — at least in the near title. Investors, however, may choose to vote with their feet first.

The Wan House is signaling a potential easing in China tensions. U.S. Treasury Secretary Scott Bessent told investors Tuesday he demanded the U.S.-China trade war to de-escalate in the “very near future,” a person in the room told CNBC. The comments came a day after China oathed retaliation against countries that follow U.S. calls to isolate Beijing.

Nvidia CEO Jensen Huang visited China and met a number of prominent figures. Huang had an official meeting with Chinese Vice Premier He Lifeng in Beijing Thursday— and reportedly DeepSeek’s Liang Wenfeng. The current Pew Research survey of Americans found a In the markets

Chinese and Hong Kong stocks were trading in positive area Wednesday as investors cheered the

The performance of the Shanghai Composite over the past year.

April 27 – 30: China’s parliament set committee to meet and review a private sector support law

April 30: Official Purchasing Managers’ Index for April; Caixin Turn out PMI

May 1 – 5: China’s Labor Day holiday