China State-Owned Giants May Delist From US Exchanges

Five of China’s largest state-owned corporations want to delist from US exchanges as the two countries struggle to agree on auditing Chinese businesses.
China Life Insurance Co., PetroChina Co., and China Petroleum & Chemical Corp. announced their delisting intentions Friday, together with Aluminum Corp. of China and Sinopec Shanghai Petrochemical Co.

The US and China have been at conflict for 20 years over American inspectors’ access to Chinese company audit work files. Negotiators haven’t reached a deal despite a 2024 deadline to shut down noncompliant enterprises. Mainland China and Hong Kong are the only two jurisdictions that don’t allow PCAOB inspections, citing security and confidentiality concerns.

As US and Chinese officials struggle to achieve a settlement, speculation mounts that sensitive Chinese companies could leave US markets willingly.

“These state-owned firms are in vital areas and may have access to information foreign regulators don’t,” said Saxo Markets strategist Redmond Wong.

The China Securities Regulatory Commission said the delisting plans were business-related.

Bloomberg Intelligence projected in May that 300 Chinese and Hong Kong companies worth $2.4 trillion risk being removed off US exchanges as the SEC raises scrutiny. China Life, PetroChina, China Petroleum & Chemical, Alibaba Group Holding Ltd., and Baidu Inc.

Uncertain if delisting will improve discussions on audit inspections, a US regulatory requirement aimed to safeguard investors from accounting frauds and other financial wrongdoing. The 2024 deadline comes from a popular 2020 bill, the Holding Foreign Companies Accountable Act.

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PCAOB Chair Erica Williams said a voluntarily delisting may not stop the board from reviewing audit work papers. The PCAOB’s jurisdiction to investigate was retrospective, so the watchdog could still require work files from departing corporations, Williams noted.

If a corporation or issuer delists this year, it doesn’t matter to Williams because he wants to know if they committed fraud last year.

Alibaba joined a growing list of corporations that could be booted off American exchanges on July 29.

Alibaba stated in July it was seeking a Hong Kong main listing, joining Bilibili and Zai Lab. The switch might help corporations attract more Chinese investors and provide a model for US-listed Chinese enterprises facing delisting.

Alibaba stated in August it would aim to keep its NYSE and HKE listings.

Alibaba, Pinduoduo, JD.com, China Life, and Sinopec sank 3% in US pre-market trade. PetroChina lost 1% and Kraneshares CSI China Internet Fund ETF sank 1.8%.

China considers eight companies listed on major US exchanges to be “national-level Chinese state-owned enterprises,” according to a congressional investigation. China Southern Airlines Co., Huaneng Power International Inc., Aluminum Corp. of China, China Eastern Airlines Corp., and Sinopec Shanghai Petrochemical.

Delistings will have little impact on the companies because their New York shares are thinly traded, but they highlight rising US-China tensions, said Bloomberg Intelligence strategist Marvin Chen.

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Relations between the superpowers have been tight following Nancy Pelosi’s trip to Taiwan provoked Chinese military drills near the island.

Congress may speed up the delisting deadline to 2023, adding pressure for the two parties to achieve a compromise.

The PCAOB chair declined to set a deadline for reaching a deal with Chinese officials, but said it must be soon.

China Mobile Ltd., China Telecom Corp., and China Unicom Hong Kong Ltd. were delisted from the New York Stock Exchange in January 2018 after President Trump banned investment in Chinese enterprises with military ties. Huaneng Power International plans to delist owing to poor volume and administrative complexity and costs.

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