American and Chinese regulators have been at odds for two decades over the rules surrounding Chinese companies listed on U.S. stock exchanges.
The U.S. requires listed firms to open their books to regulators. But Beijing has never allowed such access. Washington largely turned a blind eye to let American investors profit from China’s leading firms, but that could be coming to an end as Washington looks to get tough on China.
The showdown began in 2021, when the U.S. Congress passed the Holding Foreign Companies Accountable Act (HFCAA), which included tough new rules for U.S.-listed Chinese stocks. Washington agreed that Chinese companies must prove that they’re not state controlled, and that their auditors comply with American inspectors for three consecutive years—or be delisted from U.S. stock exchanges like the Nasdaq and New York Stock Exchange (NYSE) by 2024.
Now, around 261 U.S.-listed Chinese stocks worth $1.3 trillion are in limbo as U.S. and Chinese officials scramble to reach a final agreement on the issue. Beijing is especially keen to come to a quick consensus, because a China competition bill being debated in Congress right now includes a provision to shorten the delisting deadline to March 2023. That means if Chinese companies don’t open their books by then, they’ll be kicked off Wall Street. China also hopes to stave off a blow to its economy that’s projected to slow to 4.3% growth this year.
And perhaps most important, everything depends on one crucial point of contention between the U.S. and China: how much, and what kind of information Chinese companies and their auditors are allowed to redact in audit papers shown to American regulators, according to a new Bloomberg report. U.S. regulators want full access to Chinese firms’ audit papers. Chinese regulators are worried about sensitive information falling into U.S. hands.
In April, China’s Securities Regulatory Commission, in an unprecedented move, said it would start allowing American regulators to access the books of U.S.-listed Chinese firms. Beijing’s April concession came as Washington began releasing groups of Chinese firms to be delisted, indicating that it’s serious about booting companies from American exchanges. Since then, the U.S. has added over 80 firms to its catalog of stocks to be delisted—which includes some of China’s most vaunted and valuable companies, including electronic carmaker Nio, e-commerce titan JD.com, and grocery app Pinduoduo.
It’s unclear which companies will be allowed by China to share their information with U.S. regulators. Beijing says that overseas-listed firms can open their books, but China wants a compromise that blocks U.S. audits of tech firms and state-owned enterprises (SOEs) that the state deems to hold sensitive information, Adam Montanaro, investment director of global emerging-markets equities at Abrdn told Fortune in April.
Beijing also hasn’t clarified what constitutes “sensitive” or “classified” information that can’t be shared with overseas regulators, leaving Chinese companies unclear on how to comply.
The U.S. Securities and Exchange Commission Chair Gary Gensler has stated that full compliance with U.S. rules are nonnegotiable.
It’s not clear that Washington will accept Beijing’s desire to allow for some—but not all—full audits of U.S.-listed Chinese firms. But Chinese firms that do get booted from the U.S. are expected to relist in Hong Kong or on a mainland stock exchange. Bigger companies can, and will, likely move to the Hong Kong Stock Exchange (HKEX) “as they’re already doing. Some foreign investors will follow,” Jeremy Mark, senior fellow at the Atlantic Council and former International Monetary Fund (IMF) official, told Fortune.
But he adds that the allure of American stock markets and Wall Street’s cachet is “more than a name.” Chinese companies view a listing on Wall Street as prestigious and advantageous because the U.S. markets offer access to a bigger and deeper pool of capital.
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FAQs
Chinese companies invested 28.04 billion U.S. dollars into firms in the United States in 2023, when measured on a historical-cost basis. The total foreign direct investments in the U.S. were valued at approximately 5.39 trillion U.S. dollars in that year.
Why are Chinese stocks up so much? ›
The consumer is alive and the economy is improving.
China's economic cycle is improving, as evidenced by Q1 2024 GDP, which came in at 5.3% versus an estimated 4.8%, representing an improvement of +1.6% compared to Q4 2023.
How many Chinese companies are in the US stock market? ›
Summary: Linked here is table of Chinese companies listed on the New York Stock Exchange, NASDAQ, and NYSE American, the three largest U.S. exchanges. As of January 8, 2024, there were 265 Chinese companies listed on these U.S. exchanges with a total market capitalization of $848 billion.
How much money does China owe the United States? ›
China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. It doesn't own the most U.S. debt of any foreign country, however. Nations borrowing from each other may be as old as the concept of money.
What happens if China dumps US treasuries? ›
Since the U.S. dollar has a variable exchange rate, however, any sale by any nation holding huge U.S. debt or dollar reserves will trigger the adjustment of the trade balance at the international level. The offloaded U.S. reserves by China will either end up with another nation or will return to the U.S.
Is it worth buying Chinese stocks? ›
Pros of investing in China stocks
Rapid growth. China is an emerging market with a faster-growing economy than ours, and its government is notorious for finding ways to give Chinese companies a leg up over foreign competitors.
Will China shares recover? ›
One-year forward multiples for the CSI300 and MSCI China indices stand at 11.6x and 9.6x, well below their historical averages. Earnings are on path to recovery for the CSI300 (Goldman Sachs' top-down estimate being 9% / 11%) and MSCI China Index (8% / 10%) for 2024 and 2025 respectively, in local currency terms.
Why is it hard to invest in China? ›
The first risk usually considered when investing in China is its geopolitical situation, especially with the US. The Chinese Communist Party's (CCP) main goals are not necessarily economic growth but maintaining internal control, expanding their sphere of influence, and reunifying with Hong Kong, Macau, and Taiwan.
What is the most valuable Chinese stock? ›
China's most valuable company, Tencent, is a technology conglomerate with operations in social media, gaming, music, and e-commerce. The firm's share price peaked in early 2021, but has been in downward trend ever since (there was a brief rally during the tail end of 2022).
What are 7 US companies that are Chinese owned? ›
Chinese firms also fully-owns Triple H Coal, GM Global Steering, First International Oil, Friede Goldman United, Woodbine Acquisition, Bank of East Asia (USA).
The index selects the largest 500 eligible companies from the broader S&P Total China BMI Index, which represents the entire investment universe of Chinese companies that meet certain minimum market capitalization and trading volume thresholds, and is weighted by float-adjusted market capitalization.
Why is China's stock market falling? ›
Chinese shares ended lower amid a broad risk-off sentiment across Asia following worries over weak U.S. economic data. China's state council's guidelines to boost local consumption briefly supported mainland Chinese shares but were unable to hold on to the gains.
Is Nvidia worth as much as the entire Chinese stock market? ›
Nvidia is now worth the same as the whole Chinese stock market as defined by Hong Kong-listed H-shares, Bank of America chief investment strategist Michael Hartnett pointed out in a new note. The company's market cap has hit $1.7 trillion, the same as all Chinese companies listed on the Hong Kong Stock Exchange.
Are Chinese stocks overvalued? ›
Chinese equities are among the cheapest in the world, and perhaps for good reason with its once-hot economy sagging. Brave investors might want to bet on them narrowing a gap that still puts them at less than half of the earnings multiple and less than a third of the price-to-book value of U.S. stocks.
How much does China contribute to the US economy? ›
China was the United States' third-largest trade partner in 2021. In 2021, 8.6% of total U.S. exports of $1.8 trillion to the World were exported to China and 17.9%of total U.S. imports of $2.8 trillion were imported from China.
How much land does China own in the US map? ›
According to the latest analysis from the Farm Service Agency of the USDA, Chinese investors owned 349,442 acres of US farmland as of December 31, 2022.
How many businesses does China own in the United States? ›
As of the end of 2022, data indicates the operation of around 5,000 Chinese-owned companies in the United States, spanning diverse industries such as technology, manufacturing, finance, and real estate.
