Chinese Tech Stocks Hit Sharply as SEC Starts Implementing a Delisting Law

The U.S. Securities and Exchange Commission (SEC) adopted a “Holding Foreign Companies Accountable Act” yesterday, a law passed by the administration of former President Donald Trump, to send shares of major Chinese tech companies, listed in the US as well, sharply lower.

Shares of the dual-listed major companies, such as Alibaba (NYSE: BABA), Baidu (NASDAQ: BIDU), and JD.com (NASDAQ: JD), rotated lower amid fears that may be de-listed from the US-based stock exchanges. Chinese companies that aren’t able to comply with American auditing standards for three years in a row could be delisted, the Act envisages.

“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.”

BIDU was hit the most as it closed 9.65% lower while shares of BABA and JD fell 3.9% and 3.57%, respectively. The Hang Seng Tech Index closed 1.2% lower.

“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.

Everbright Sun Hung Kai strategist Kenny Ng believes it will be “difficult” for China to open the accounting books to regulatory agencies due to national security concerns.

The SEC is now in the process of seeking public comments as it works to set provisions to identify companies that fail to meet the standards. The Commission is reportedly still assessing some other requirements of this law, including the identification process and trading prohibition standards.

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