Hong Kong deal could save US-listed Chinese stocks $1.3 trillion from delisting

China’s technology shares surged in US trading on Thursday after The Wall Street Journal first reported on a potential truce in a the war lasted many years between the United States and China regarding access to the audit documents of Chinese companies listed in the United States.

China is offering US regulators the opportunity to review documents from US-listed Chinese companies in the semi-autonomous Chinese city of Hong Kong, WSJ report on Thursday. If the two sides reach an agreement, it will save more than 261 Chinese companies with a total market capitalization of about $1.3 trillion from pushed out from US stock exchanges.

The Nasdaq The Golden Dragon Index, which tracks Chinese companies listed in the US, rallied on the news that it closed up 6.3% on Thursday.

Under the terms of the Foreign Companies Accountability Act (HFCAA), passed in 2020, the United States will remove from American exchanges any company that does not provide its books. they are reviewed by the Corporate Accounting Oversight Committee (PCAOB). China has long barred US auditors from accessing the documents, citing national security reasons.

As of Friday, the US Securities and Exchange Commission has point 163 Chinese companies temporarily violated or concluded to be in violation of the HFCAA. Once a company is determined to be non-compliant, it has three years to correct the situation before being removed from the exchange.

Some of China biggest companyalike Alibaba Group Holding, JD.comand Chinese Yum shortlisted, putting their future on Wall Street in doubt. Some companies, such as PetroChina and Sinopec, have has left United States exchanges in an apparent attempt to overcome forced cancellations.

Now it is up to US regulators to decide whether China’s offer in Hong Kong is enough. China will redact certain details such as factory addresses and personal identification numbers from documents it submits, ostensibly to comply with domestic laws on cybersecurity and data protection. personally, reported by South China Morning Post.

In the past, the United States has requested unrestricted access to Chinese company documents, with SEC Chairman Gary Gensler, at times, seemingly quite ready to trigger a mass delisting of the company. China. “Most likely there is no deal here. I am not particularly confident,” said Gensler told reporters in July.

Hong Kong Fence

Chinese companies listed in the US have reached out to Hong Kong as hedge against delisting.

Several Chinese companies have announced plans to launch a secondary listing in Hong Kong or upgrade an existing secondary listing in the city to a primary listing. Either move would allow a company’s shares to continue trading if they were to be moved off Wall Street.

Alibaba on July 26 said it will upgrade its secondary listing in Hong Kong to the primary listing. In addition to hedging against delisting, the upgrade will allow the Chinese e-commerce company to tap mainland China’s capital through the Hong Kong exchange’s Securities Connect program, facilitate mainland Chinese investors to buy shares listed in Hong Kong.

Bilibili and Chinese Yum also announced that they will upgrade their secondary listing in Hong Kong to the primary listing.

Hong Kong, as a Special Administrative Region of China, has a separate legal system from the rest of the country. Stronger legal protections and more freedoms (compared to mainland China) have long made the city a hub for professional services, such as accounting and consulting firms. and legal firm, serving both mainland Chinese companies and foreign companies looking to do business in China. The city is famous as an international business center has been crushed in 2019 social unrest, National Security Law of 2020 passed and two years of COVID restrictions.

Hong Kong’s separate system has sometimes hindered its ability to attract listings of Chinese companies. Chinese regulators have give mixed messages on whether Chinese companies listed in Hong Kong are subject to new data privacy rules for overseas listings.

The Hang Seng Index closed 1.0% higher on Friday. The Hang Seng Technology Index, which tracks 30 Hong Kong-listed technology companies, also gained 0.8% on Friday, though still down 24.7% on the year.

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