Shares of major Chinese technology companies saw heavy selling in both the U.S. and Hong Kong stock markets on Thursday (March 25) on fears of being delisted by U.S. market regulators, leading to heavy share price losses.
Shares of Chinese e-commerce giant Alibaba traded down 4.2 percent in midday trading Thursday (March 25) in Hong Kong; shares of search engine company Baidu, which has been listed for less than a week, fell as much as 9.65 percent; Tencent dropped 2.3 percent; Jingdong fell 3.57 percent; and NetEase shares fell 2.25 percent.
The collective decline in Chinese technology stocks led to a 5-point slide in Hong Kong’s Hang Seng Technology Index, which tracks Chinese tech stocks.
On the U.S. stock market, shares of those companies also performed very poorly. Alibaba fell 3.4 percent Wednesday, Tencent fell 5 percent, Baidu dropped 8.5 percent, NetEase fell 3.6 percent and Jingdong fell 4.4 percent. Signs ahead of the start of market trading on Thursday suggest that the slide in these stocks is not over.
Chinese companies listed on the U.S. stock market that fail to meet U.S. auditing standards for three consecutive years will be delisted under the Holding Foreign Company Accountability Act, which former U.S. President Donald Trump signed into law last December.
The SEC said in a statement Wednesday that the regulations require foreign companies to provide proof that they are not owned or controlled by a foreign government entity.
In fact, this round of stock market crackdowns on Chinese technology companies has come not only from U.S. market regulators, but also from the Chinese government. In the recent period, Chinese regulators have launched anti-monopoly investigations and overhauls in the name of anti-monopoly against large tech companies such as Alibaba and Tencent, which are undergoing significant changes in their business models and profit channels, causing investors to lose confidence in their growth expectations.
DailyFX, a New York-based market analysis firm, said Chinese Communist authorities are considering forming officially backed joint ventures with tech companies to monitor the user data they collect. “This approach could mark a further tightening of government control over technology companies,” Yang Lin, a strategist at the market analysis firm, was quoted as saying by Reuters.
On the other side of the coin, experts are not too optimistic that U.S.-listed Chinese tech companies will be able to provide the SEC with enough material to prove they are meeting the market auditor’s requirements by the required deadline.
Kenny Ng, a strategist at financial services firm Everbright Sun Hung Kai, told Reuters, “It’s very difficult to get all U.S.-listed Chinese companies to open their books to U.S. regulators, especially those listed with national security or national data at stake.”
The change in U.S. president has not lessened the pressure on U.S.-China relations. In the past two months, the Biden administration has moved to strengthen coordination with allies, and the U.S. and Europe have shown significant results in joining forces on many fronts against the Chinese Communist Party, creating more pressure on the Communist Party. Analysts say this international environment has added to the woes of Chinese technology companies listed in the United States.
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