Many Chinese companies that are listed in three of the United States' largest exchanges are in danger of being delisted in the near future, and this is expected to affect China's earnings from the American stock exchange.
According to a report from NTD, the value of Chinese companies that are listed in the New York Stock Exchange, NASDAQ, and NYSE American have taken a plunge due to growing tensions between the American government and the Chinese communist regime.
The value of Chinese companies that are annually listed in the said exchanges have been increasing up to tenfold in the past two years, greatly benefiting both the companies themselves and Wall Street. The growing tensions between Beijing and Washington, however, seemingly nullifies that.
The US-China Economic and Security Review Commission regularly updates the list of companies that are trading on the American exchanges. As of the end of September this year, there were 262 Chinese companies listed in the three largest exchanges.
Combined, these companies have a total market value of $775 billion dollars. However, this is but more than half a trillion dollars lower than the end of June. This is largely because several major Chinese state-owned enterprises were delisted earlier in August.
As of now, two Chinese state-owned enterprises remain listed on major American exchanges.
American Exchange Rules
The American government requires all publicly-traded companies to have their auditors inspected by U.S. regulators. The Chinese companies in the listings, however, appear to have skirted around this requirement, as the communist Chinese government blocks all foreign inspections citing "national security concerns."
The U.S. government is putting the spotlight on this issue and will be requiring companies listed in American stock exchanges to comply with the said inspections. Those who refuse to comply will be delisted.
Following a new U.S. law on audit and inspections, at least half of the 262 Chinese companies mentioned above, or more, are at risk of being delisted from the exchanges.
These companies facing potential delisting represent a whopping 98% of the market value of all Chinese companies listed on these exchanges.
Penalties For Noncompliance
In recent years, Chinese companies were faced with millions of dollars in fines from American regulators. These fines are for accounting fraud alone, the report noted.
Two of these companies include Luckin Coffee and Leshi holding. These two major Chinese companies are considered China's Starbucks and China's Netflix, respectively, but have been penalized over accounting issues.
Luckin was fined, and has agreed to pay, $180 million dollars to resolve the charges. Leshi holding, on the other hand, was given a $73.6 million penalty.