Chinese stocks have been selling off in the U.S. and Hong Kong stock markets recently. Pictured is the New York Stock Exchange.
Shares of major Chinese technology companies saw heavy selling in both the U.S. and Hong Kong stock markets on Thursday (March 25) due to fears of being delisted by U.S. market regulators, leading to a heavy drop in share prices.
Shares of Chinese e-commerce giant Alibaba traded down 4.2 percent in midday trading Thursday (March 25) in Hong Kong, while 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 stock fell 2.25 percent.
The collective slide in Chinese tech stocks caused Hong Kong’s Hang Seng Technology Index, which tracks Chinese tech stocks, to slip 5 percentage points.
In the U.S. stock market, shares of these companies also performed very poorly. Alibaba fell 3.4% on Wednesday (March 24), Tencent fell 5%, Baidu dropped 8.5%, NetEase fell 3.6% and Jingdong fell 4.4%. 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 signed by former U.S. President Donald Trump (R) last December.
The SEC said in a statement Wednesday that the rules require foreign companies to provide proof that they are not owned or controlled by a foreign government entity.
China’s Foreign Ministry believes the U.S. decision damages the reputation of the U.S. capital markets. Chinese (Communist Party of China) Foreign Ministry spokeswoman Hua Chunying said Thursday that this is a clear discrimination against Chinese companies and an arbitrary political crackdown on Chinese companies listed in the United States.
In fact, this round of blows to Chinese technology companies in the stock market came not only from U.S. market regulators, but also from the Chinese (Communist Party of China) government. In the recent period, Chinese (CCP) regulators, in the name of anti-monopoly, have launched anti-monopoly investigations and overhaul of large tech companies such as Alibaba and Tencent, whose business models and profit channels are undergoing significant changes, causing investors to lose confidence in their growth expectations.
DailyFX, a New York-based market analysis firm, said Chinese (Communist Party of China) 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 its allies, and the U.S. and Europe have shown significant results in joining forces against China (the Chinese Communist Party) on many fronts, creating more pressure on the Chinese (Communist Party) side. Analysts say this international environment is adding insult to injury for U.S.-listed Chinese technology companies.
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