Five of China’s largest state-owned enterprises worth $318 will soon be pulled from Wall Street

For months, federal regulators have increased pressure on Beijing and Chinese companies that trade on US exchanges to comply with US listing rules.

But on Friday, five of China’s largest U.S.-listed public giants, valued at $318 billion, announced they would exit Wall Street instead, marking an acceleration of the financial decoupling between the United States and China.

public insurer Life insurance in China, energy giants PetroChina and China Petroleum & Chemical Corporation, alongside Aluminum Corporation of China and Sinopec Shanghai Petrochemical, all said on Friday they would delist from the New York Stock Exchange (NYSE), as Washington and Beijing continue to scramble to let US inspectors audit Chinese companies. The fight could lead to the expulsion of hundreds of China-based companies from US stock exchanges.

Just in case, Chinese companies are preparing to be kicked off Wall Street. “Public companies see that the writing is on the wall for them,” said Liqian Ren, director of modern alpha at investment firm WisdomTree Asset Management. Fortune, and indicates that a bigger shift may also be on the way for other China-based state-owned companies.

Business decisions

The United States and China are the loggerheads during a decades-long dispute over allowing US inspectors to audit US-listed Chinese companies. The US audit watchdog wants full access to Chinese companies’ auditors and audit documents, but China has refused, citing national security concerns. The United States could delist more than 260 Chinese companies worth a combined $1.3 trillion by 2024 if Washington and Beijing fail to reach an agreement.

Chinese securities regulator said in a Friday statement that “listings and delistings are… common in capital markets.” He added that the five state-owned enterprises followed US rules when listing on US stock exchanges, and that their delisting decisions were only “made by commercial considerations”.

Other Chinese companies listed in the United States may follow in the footsteps of the five state-owned enterprises (SOEs). The other two Chinese state-owned enterprises listed on US stock exchanges – two state-linked airlines – “will definitely consider” delisting in New York, Ren said. China’s state-owned companies all hold information that Beijing deems sensitive or crucial to national security that it doesn’t want US inspectors to have access to, meaning it wouldn’t be surprising if the remaining state-owned companies choose to pull out soon. of the list, Brendan Brendan Ahern, chief investment officer at KraneShares, a China-focused investment fund, said Fortune.

However, this coverage is not limited to state enterprises. Other Chinese companies want to keep their listing in the United States. But they will eventually “look at the situation and make a strategic choice,” Ren says. For most large companies, they will feel a U.S. listing is risky and exposes them to being caught in the crossfire between Chinese and U.S. regulators, especially in the face of deteriorating China-U.S. relations, says -she.

And non-state companies have taken steps to reduce these risks. On July 29, the United States Securities and Exchange Commission (SEC) added Chinese tech giant Alibaba— which raised $25 billion in 2014 in the United States the biggest IPO of all time— to his radiation watch list. Ali Baba announcement that it change its listing in Hong Kong from secondary to primary status, allowing it an exit route in the event of delisting and allowing it to appeal to investors from mainland China.

Progress stifled

In recent months, the SEC has continued to add Chinese companies to its now long list of companies at risk of deportation from US stock exchanges. SEC Chairman Gary Gensler reiterated that the United States would accept nothing less than China’s full compliance.

beijing would have wants to strike a deal with Washington that would separate Chinese companies listed in the United States based on the type of data they hold. China is seeking a compromise to let most non-state companies open their books to US inspectors, but restrict reviews of state-owned companies and tech companies that hold sensitive information, Adam Montanaro, chief investment officer of global emerging markets equities at abrdn investment company, Told Fortune earlier this year.

While “China has incentives to improve its relations with the United States, [their ties] have been badly damaged in recent years. Confidence is very low, especially with the recent surge in Taiwan,” Ren says. At the same time, US regulators have made it clear that they want full access and compliance. There will not be a two-tier access system,” as Beijing wants, she says.

Ahern, however, argues that the delistings of the five state-owned enterprises are a positive sign that Washington and Beijing may be closer to reaching a consensus on delisting. Once China’s state-owned companies are all delisted from Wall Street, the “remaining non-state companies have long declared they have nothing to hide” from US inspectors, Ahern says.

Yet the SEC’s delisting watch list has only grown longer, and the challenges for Chinese companies listed in the United States have grown more difficult. The SEC has now flagged 159 companies, including Alibaba’s e-commerce rival JD.comsocial media and blogging giant Weiboparent KFC yum china, and biotech firm BeiGene, kicked off Wall Street if they don’t comply. Washington “clearly won’t give an inch. There is no compromise to be made. The Chinese side [must] make any concessions,” China-focused research firm trivium wrote in an April note.

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