Beijing and Washington have been locked in a fast-moving, high-stakes game of brinkmanship since Trump launched a global tariff assault that has particularly targeted Chinese imports.
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The trade showdown between Washington and Beijing is spilling over to Chinese stocks listed in the US, with analysts war-gaming a scenario where they’re booted off American exchanges.
US Treasury Secretary Scott Bessent, asked about delisting companies, said all options are “on the table” in trade negotiations with China. While no further details have been floated, strategists and analysts at JPMorgan Chase & Co., Morgan Stanley, Jefferies Financial Group Inc. and UBS Group AG have published notes assessing the risk for the more than 200 Chinese companies listed in the US, with a total market capitalization of $1.1 trillion.
PDD Holdings Inc., the owner of discount e-commerce platform Temu, as well as the likes of Vipshop Holdings Ltd. and TAL Education Group could be hardest hit by such a move.
These companies are among the relatively few US-traded Chinese firms with no Hong Kong-listed shares for their US stock to convert into.
In the event of delisting, these firms could be removed from global indexes, leading to about $11 billion worth of passive outflows, according to JPMorgan estimates - $9.4 billion of which would come from PDD alone.
The Nasdaq Golden Dragon China Index, a cap-weighted index of US-listed Chinese firms, has so far largely shrugged off the threat. It is down 0.5% in the year to date, outperforming the S&P 500 Index’s 8% drop over the same period.
Delisting Revisited
The scenario is familiar to investors in US-listed Chinese firms, which came under scrutiny during President Donald Trump’s first term when Beijing and Washington were locked in a dispute over the audit practices of Chinese companies. The issue was effectively resolved in 2022 and lay dormant until early in Trump’s second term, when he issued an executive order directing the government to step up scrutiny of US investment into Chinese companies.
The administration has numerous tools to implement delisting. The US Securities and Exchange Commission could order exchanges to delist Chinese or Hong Kong-based firms, or deregister those firms from trading in the US at all - even over-the-counter, where Didi Global Inc. and Luckin Coffee Inc. still trade despite leaving US exchanges. The SEC could also invoke an emergency power to order a trading suspension, though such a move might be bolstered if it were initiated by the White House.
Another option would be to require the SEC to issue a final rule prohibiting the use of variable interest entities, the business structure most Chinese and Hong Kong firms use to facilitate trading in the US, and which Trump cited in his executive order. All of those options would likely work faster than using the Holding Foreign Companies Accountable Act, the legislation underlying the previous auditing conflict.
With the flaring up of the trade war, Bessent’s comment is a reminder that the delisting threat remains part of Trump’s approach to managing the overall conflict between the two powers.
“The US has two powerful cards: ADR delisting and US investment ban,” according to a note from Jefferies analysts led by Edison Lee. “The US reciprocal tariffs are not just about trade, but more about competition between the US and China, and making sure the US wins.”
Valuation Risk
Delisting would raise liquidity concerns. Trading volume for some American depositary receipts, the structure often used by Chinese companies for their US-traded stock, has been much higher than for the firms’ Hong Kong listings, Jefferies wrote. The average daily trading volume of Alibaba Group Holding Ltd.’s and JD.com Inc.’s respective ADRs is about 80% higher than their Hong Kong shares, Morgan Stanley data showed.
If all ADRs were to be removed from US exchanges at the same time, “the entire Chinese equity market would face valuation downside risk” based on the ramping up of US-China geopolitical tensions, Morgan Stanley’s Laura Wang wrote in a note. Over the long run, however, the Hong Kong market should be able make up for the volume, especially for larger names, Wang added.
In the short term, forced delisting would be disruptive if shareholders find converting US ADRs into Hong Kong shares challenging, or they simply don’t want to hold them.
The risk is lower for most US-listed Chinese companies, according to Jerry Wu, a London-based fund manager at Polar Capital LLP. Alibaba and JD.com’s investor base was once primarily US backers, but now China domestic investors have become a key part of the owners of these shares, he said.
PDD is the exception, Wu said, citing its lack of a Hong Kong listing. “The roadmap is there, right? Alibaba and JD’s boards have done it in the last few years and if PDD wants to do it, I think it will be a simple enough process. But in the short term, I think it does create some volatility for shareholders.”
BLOOMBERG