Confusion over Chinese stocks listed in the US

Date: 14 January, 2021 - Blog

At the beginning of last week, the New York Stock Exchange announced the withdrawal of 3 Chinese companies, China Mobile, China Telecommunications and China Unicom, to say the opposite a few hours later, then confirm eventually the withdrawal. The NYSE had to comply because an executive order from the US Administration signed on December 18th, 2020 comes into effect on January 11th, 2021 with fines for those who fail to comply.

On December 2nd, 2020, the US Congress passed a bipartisan law, The Holding Foreign Companies Accountable Act (HCAA), which requires foreign companies listed in the US to comply with US accounting requirements and to accept accounting audits from the SEC. This law obviously targets Chinese companies as a priority.

On December 18th, 2020, Donald Trump signed the executive order on the HCAA which allows Chinese companies to be banned from American stock exchanges if they do not comply with American audit standards. To this was added the blacklist of Chinese companies that pose a risk to the security of the United States and that would work with the Chinese military, with the ban on federal pension funds from investing in these listed companies.

Alibaba and Tencent’s stock prices fell last Wednesday amid rumors of their inclusion on this US blacklist. Donald Trump’s administration also wanted to ban payment platforms Alipay (Alibaba) and WeChat Pay (Tencent).

This techno-financial war of the United States against China is causing a lot of confusion for investors where HCAA and blacklist are mixed up:

  1. How will the new US Administration position itself? Will it follow the same path?
  2. Must all US investors comply with the blacklist?
  3. For foreign investors, will there be extraterritoriality of US law?
  4. How to comply with the HCAA and the blacklist and avoid fines from January 11th, 2021?
  5. What are the sanctions and how much are the penalties?
  6. Are the subsidiaries of companies on the blacklist concerned?

Index providers like MSCI, FTSE Russell, Dow Jones Indices and Nasdaq removed blacklisted Chinese companies from their indices. Following the NYSE decision, the London Stock Exchange released the ADRs of China Mobile and China Unicom.

  • The CSI 300 index is very close to its all-time high of October 2007