New Bill Could Result in Several Chinese Companies Being Delisted from the U.S Stock Exchange

A new bill could result in several Chinese companies being delisted from the U.S. stock exchanges.

Per TheHill, under the bill authored by Sens. John Kennedy (R-La.) and Chris Van Hollen (D-Md.), a company that doesn’t comply with the oversight board’s audits for three consecutive years would be banned from being listed on U.S. exchanges. Rep. Brad Sherman (D-Calif.) has introduced companion legislation in the House.

Speaker Nancy Pelosi (D-Calif.) said Thursday that the House is taking a look at a bipartisan Senate-passed bill that could result in barring some Chinese companies from listing shares on U.S. stock exchanges.

“We’ll review it in the House. I’ve asked my committees to take a look at what it is,” Pelosi said during an interview with Bloomberg Television.

Bloomberg reports a U.S. bill that aims to delist foreign companies from the country’s stock exchanges is likely to become law, analysts and experts said on Thursday, noting that it would mark the latest escalation of the U.S.-China tensions in Washington.

The legislation, which requires companies to certify that they are not under the control of a foreign government, was approved by the Senate by unanimous consent on Wednesday.

“No vote is yet scheduled in the House, but we believe there will be a significant push for the legislation to be taken up in the coming weeks, and we believe it is only a matter of time before this bill (or something similar) is signed into law,” Raymond James policy analyst Ed Mills wrote in a note to clients.

Even if the bill is eventually approved, actual delisting requirements may kick in several years from now, experts said. But any move could still prompt retaliation from China, especially given the current fraught relationship between the two countries in the midst of drawn out trade negotiations and the Covid-19 outbreak.

“The optics of even holding this vote are likely to trigger backlash from China and further rhetoric around releasing the Unreliable Entity List, restricting rare earth minerals, boycotts and the like,” Veda Partners’ director of economic policy Henrietta Treyz said.

The bill comes at a critical time, analysts noted, when both Republicans and Democrats want to appear tough on China, earning the legislation strong bipartisan support.

Some of the most important Chinese companies that might come under the bill include Alibaba Group Holding Ltd., PetroChina Co. Ltd., Baidu Inc. and JD.com Inc. According to Mills at Raymond James, affected companies may list on non-U.S. stock exchanges, which would limit the bill’s reach.

The American Depository Receipts (ADRs) of these companies, except Baidu, were underperforming the S&P 500 Index on Thursday, especially as the delisting bill is the second blow to these names in two days. On Wednesday, Bloomberg News reported that Nasdaq Inc. was planning new rules that would make initial public offerings more difficult for some Chinese companies. However, the latest developments mean any major foreign IPO may face some hurdles, for example, Saudi Arabian oil exploration company Saudi Aramco.