US bill to audit or delist Chinese companies unlikely to have significant impact on funding avenues, analysts say

Some 210 Chinese companies listed on US exchanges will get three years to comply with new auditing oversight, or risk being delisted
Companies can still raise capital by listing in Hong Kong or mainland China, made easier by IPO reforms in recent years

US-listed Chinese stocks

Ethan PaulandYujing Liu

Published: 7:43pm, 3 Dec 2020

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Chinese companies and their investors are likely to shrug off the latest US bill that could delist them from American exchanges as they have alternative capital-raising venues at home. It may inject urgency in more listing reforms in Hong Kong and mainland China.

The Holding Foreign Companies Accountable Act, passed by the House of Representatives earlier this week, would give the more than 210 Chinese companies three years to comply with auditing oversight rules applied to other listed companies. President Donald Trump is expected to sign it into law, according to several US media reports.

“I don’t think this is a big issue or event for the Hong Kong and China markets,” said Edmond Huang, head of China equity strategy at Credit Suisse, during a conference call on Thursday. “Of course, compared to the US market, liquidity in Hong Kong is not that great but it is getting better right now compared to 2019. And the doors will open a little wider in 2021.”

The average trading volume in Hong Kong has increased by as much as 140 per cent this year from a year earlier on a monthly basis, according to stock exchange data. A landmark reform in April 2018 that opened doors to companies with the so-called weighted voting rights (WVR) structures laid the groundwork for the homecoming of US-listed Chinese companies.

02:17

HKEX chief executive Charles Li Xiaojia unveils three-year plan

The bill, earlier passed by the Senate in May, has spurred a spate of secondary listings in Hong Kong by such companies. They included e-commerce group and this newspaper’s owner Alibaba Group Holding, gaming giant NetEase, e-commerce platform JD.com and its health care unit JD Health and restaurant chain Yum China.

Hong Kong Exchanges and Clearing, the bourse operator, is keen to deepen its listing reforms, its outgoing chief executive Charles Li Xiaojia said in August, to accommodate US-listed Chinese firms whose corporate shareholders own more voting rights than other investors.

While Hong Kong would appear a better destination for secondary listing than Shanghai or Shenzhen amid the listing reforms, many Chinese firms are still likely to pursue a listing New York for its unique advantages, according to Bruce Pang, head of macro and strategy research in Hong Kong at China Renaissance Securities.

At the same time, “listing in the US will still be attractive to companies in certain industries,” he wrote in a report published on Thursday. The advantages include its abundant liquidity and diverse investor base, he said, while investors in the US market are also more receptive to new business models operated by the Chinese tech start-ups.

Pending the reform alluded to by HKEX’s Li in August, many of the largest private tech companies in China would have to skip Hong Kong and head to the US to raise capital, according to Pang.

Chinese companies traded mixed on Wall Street overnight. Alibaba Group Holding, the owner of this newspaper, fell 1 per cent, while JD.com declined 1.2 per cent. Search engine giant Baidu advanced 2.5 per cent. A gauge tracking 42 most popular US-listed Chinese stocks compiled by Futubull gained 0.2 per cent.

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