Unfair US rules set to spur more home floats
New disclosure norms adopted by the United States' securities regulator may prompt the listed Chinese mainland companies return to Chinese bourses, said experts.
The US Securities and Exchange Commission said on Wednesday that it has adopted interim final amendments to implement the disclosure requirements under the Holding Foreign Companies Accountable Act which require firms to establish that they are not owned or controlled by a foreign government entity. These companies are also required to disclose any foreign arrangements and influence in their annual report.
Following the announcement, share prices of some Chinese mainland companies listed in the US slumped on Wednesday. Tencent Music Entertainment Group saw its share prices plunge by 27 percent and market value shrink by $14.4 billion. Likewise, the price of online discounter Vipshop Holdings declined by 21 percent and that of electric carmaker XPeng Inc by 15 percent.
Former US president Donald Trump signed the HFCA Act in December, aiming to prevent Chinese mainland companies from listing on US exchanges if they have not complied with audit requirements from the Public Company Accounting Oversight Board－the organization overseeing the audits of US-based public companies－for three consecutive years.
Foreign Ministry spokeswoman Hua Chunying stressed at a news conference on Thursday that the Act is basically an unjustified crackdown on US-listed Chinese mainland companies through political means. It has seriously distorted the basic market rules that the US has long flaunted and deprived US investors of the opportunity to benefit from Chinese mainland companies' development. The US should create a fair and unbiased business environment for all companies listed in the country, including Chinese companies, she said.
Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, said this was the first time that the US government has injected political hues into the capital market, which was aimed at encumbering China's economic development by all means. The Act, which is indeed discriminatory, has not only shut the door for Chinese companies wishing to go public in the US, but also closed the door to the US free market, he said.
Pang Ming, head of macro and strategic research at China Renaissance Securities (Hong Kong), said regulatory uncertainties were one of the major issues confronting US-listed Chinese mainland companies for some time. The Chinese mainland's capital market is ready to better embrace new economy companies based on ongoing reforms and the closer ties with Hong Kong. As a result, some companies, which are listed or planning to go public in the US, may opt for Hong Kong and the Chinese mainland capital markets.
After the HFCA Act was passed in December, 12 US-listed Chinese mainland companies have successfully re-listed their shares in Hong Kong as of March 24.
Analysts of Galaxy Securities said in a report that there are 48 US-listed Chinese mainland companies that are eligible for re-listing in Hong Kong, which is about 18 percent of the Chinese mainland companies traded on US exchanges. Given the ever-increasing southbound capital－the amount of capital flowing into the Hong Kong stock market from Chinese mainland investors via stock connect programs－as well as the systemic advantages of the Hong Kong stock exchange, the return of US-listed Chinese mainland companies is expected to accelerate.