People exposed to China’s ADRs are considering all the questions, whether they are CEOs of US listed Chinese companies or equity strategists dealing with the Chinese market.
Some of China’s largest companies, including JD.com (Fortune Global 500 No. 47), Alibaba (No. 70) and PDD Holdings (No. 442), trade in the US. But these giants and many much smaller companies were able to have their presence as they are threatened by a revived trade war with Beijing launched by US President Donald Trump.
Last week, several members of Congressional Republicans, including John Mourenard, chairman of the House Selection Committee on the Communist Party of China; I wrote that I was recently appointed Paul Atkins, chairman of the Securities and Exchange Commission, “expresses serious concern over the continued existence of Chinese companies on US stock exchanges.”
In a letter reported by Financial Times, Lawmakers pointed out Chinese companies listed in the US, both large and small, from giants such as Alibaba and JD.com to EV brand XPENG and automotive provider Pony.AI.
“It’s all on the table.”
There has been growing concern about delisting since late February, when Trump revived the threat of kicking Chinese companies out of US exchanges with his “America First Investment Plan.” In his memo, Trump ordered officials to determine whether Chinese companies support US audit standards and investigate the structures that these companies use to list them in foreign exchanges.
Since then, administrative authorities have refused to rule out taking action against US-listed Chinese companies.Everything is on the table. ”
“Threats are growing in important ways,” says Sandeep Rao, a researcher at leveraged equity.
The Nasdaq Golden Dragon China index, which tracks Chinese companies listed in the US, has fallen by about 7% since the “liberation date.” In comparison, Hong Kong’s Hang Seng Tech Index, which tracks high-tech companies (including those that trade in the US) traded in Chinese cities, fell 4.6% over the same period.
Chinese companies have long looked at the deep US liquid markets to raise capital. Alibaba’s IPO on the New York Stock Exchange in 2014 raised $25 billion, the world’s largest IPO at the time, only replacing Saudi Aramco’s 2019 list in Riyadh.
As of the end of March, 286 Chinese companies were listed on US exchanges, with a total market value of $1.1 trillion. South China Morning Post.
However, US investors have complained about the poor standard of audit standards for Chinese companies. Technically, companies listed in the US must open their books to US regulators, but Chinese officials often cite national security to ban such access. The revelation that Chinese coffee chain Lucky Coffee in 2020 had inflated sales was Congress’s last straw, passing the responsible laws of foreign companies that have given Chinese companies access to US regulators or ordered the risk of casting US exchanges.
After years of negotiations, China agreed to review audit documents for Chinese Hong Kong cities with regulators in 2022, lifting the threat of listing and calming investors.
Still, the damage was already done as US-listed Chinese companies began exploring Hong Kong’s secondary list. Last year, Alibaba upgraded its Hong Kong list to its primary list, allowing Chinese e-commerce companies to tap on Chinese investors through the city’s southbound connection scheme.
Some investors are “moving from keeping US tickers on Hong Kong tickers due to registered threats,” says Rao.
Hong Kong may be the winner
In mid-April, Goldman Sachs estimated that US institutional investors held approximately $830 billion worth of stake in Chinese companies, spreading across mainland China, Hong Kong and the US market. That approximately $250 billion is found in China’s ADR.
Still, “holdings of stock by foreigners, particularly US holders, have fallen meaningfully against where we existed five years ago,” said Cameron Chuy, an Asian Equity Strategist at JPMorgan Private Bank, when he briefed reporters on Wednesday when asked for the possibility of registering. “The risk has definitely been significantly reduced.”
Rao said that even if US investors are registered, they may be able to continue trading with Chinese companies. Tencent, one of China’s largest tech companies, has a major list in Hong Kong, but is also traded in the US OTC market.
Meanwhile, Chinese companies have already tweeted about other options. In a conversation with reporters on the sidelines of the Shanghai Auto Show, Pony.AI CEO James Peng said his secondary listing. Hong Kong was possiblethe startup has confirmed that it is focusing on the release of next-generation vehicles.
Geely Auto is I’m taking it again Zeekr Private, a US-listed EV brand, just a year after the New York IPO, streamlined the operations of Chinese automotive giants and increased profitability.
In a mid-April report, Goldman Sachs highlighted 27 US-listed Chinese companies that are likely to be covered by Hong Kong’s list (secondary or primary list), including PDD, retail stock trading platform Futu, and digital logistics platform Full Track Alliance.
However, some Chinese companies have the courage to geopolitics to pursue US listings. Chinese tea chain Change has been raised $411 million It will debut on the Nasdaq on April 17th at the US IPO.
Hong Kong looks more attractive, and at least not so bad, as a place to trade stocks. The city’s main list opens up the possibility that mainland Chinese investors will trade stocks in the company. Southbound flow (i.e. mainland China to Hong Kong) It’s been a surge in recent monthsAs an investor in mainland China, he is drinking barrels at the AI boom, represented by companies such as Alibaba and Semiconductor International Manufacturing Corporation.
“At least, if you’re a Chinese company listed in the US, it’s very wise to have a secondary list in Hong Kong,” says Rao.
The city is passing an IPO revival as mainland Chinese companies want to leverage global capital through their “overseas” lists. Last November, a $4 billion IPO by Midea, the world’s largest consumer electronics manufacturer, drove things away. Mixue continued in March with an ice cream chain with more outlets than McDonald’s.
Hong Kong is hoping for at least two blockbuster IPOs in the coming months. CATL, the main supplier of Tesla batteries, is Raise $5 billion In Hong Kong in the near future. (JPMorgan and Bank of America support IPOs. It attracted council scrutiny.)Chinese automaker Chery Auto IS Also, preparation Hong Kong’s list raises $1.5 billion.
However, Hong Kong is not the perfect alternative to New York. “There’s nothing positive from now on. Hong Kong’s liquidity is not the same as in the US,” Chui said Wednesday.
This story was originally featured on Fortune.com.
