The future of China’s U.S. listed firms: legal and political perspectives on possible decoupling

There is a long history of Chinese firms raising capital on leading U.S. exchanges and these shares are estimated at $1 trillion value. Yet these investments are now on shaky ground on both sides of the U.S.-China faultline. Chinese firms have benefited from U.S. capital without complying with investor protections, particularly audit inspections, owing to differences in approaches to company data and opaque structures that have misled some investors. As a result, U.S. listed Chinese companies also face the looming threat of delistings under the Holding Foreign Companies Accountable Act (HFCAA) and China is unlikely to come to the rescue of all. Chinese listings of nonstate firms had depended on a largely laissez-faire approach by China to the expansion of this sector through foreign listings but heightened levels of state involvement in the affairs of nonstate companies are now bringing strain, as Communist Party policies have changed dramatically in recent years. The HFCAA was the result of a geopolitical standoff following prolonged disputes over access to financial audits of U.S. listed Chinese companies, which had been resisted by Chinese agencies for data security reasons and those data concerns have not gone away. These concerns, together with some other Chinese state strategies have partly been allayed by an agreement as to inspections. Uncertainties remain and there may yet be the potential for future delistings, presenting risks for U.S. investors, as well as slowing the stream of U.S. listings by Chinese companies. It will not yet amount to a decoupling, but investors should be wary