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Chinese ADR: delisting fears intensify


It was yet another brutal week for already dejected Chinese stocks.

The NASDAQ Golden Dragon China Index, which tracks 93 of the largest Chinese companies listed in the United States, ended Friday, March 11, 2022 down about 10%, while the Hang Seng was down 3% on the week. .

The declines came after the SEC publicly named five Chinese ADRs listed in the United States that may violate the Foreign Company Liability Act.

The five companies identified by the SEC are:

  • BeiGene Limited (NASDAQ: BGNE)
  • Yum China Holdings Limited (NYSE: YUMC)
  • Zai Lab Limited (NASDAQ: ZLAB)
  • ACM Research (NASDAQ:ACMR)
  • HUTCHMED (China) Limited (NASDAQ:HCM)

Each faces potential delisting if they don’t start complying with US accounting and transparency standards.

All five stocks tumbled on Thursday after the SEC’s announcement, but investors in other big-name Chinese stocks were also clearly spooked. Alibaba Inc (NYSE:BABA) lost 5% during the week, falling to a new 52-week low. JD.com (NASDAQ: JD) plunged 13% during the week, and Baidu (NASDAQ: BIDU) lost nearly 5% and is now trading at its lowest level since October 2020.

KraneShares exits Chinese ADRs

Following the SEC bombshell, an expert Chinese investment firm, KraneActionsannounced that it would convert all of its Chinese ADR holdings into equivalent shares listed in Hong Kong over the next few months.

“The first five ADRs identified could be delisted in 2024 if they fail to comply with the law,” the firm said.

“These companies will not be able to comply with US requirements without cooperation between securities regulators in the United States and China. As things stand, Chinese law prohibits these companies from allow the Public Company Accounting Oversight Board (PCAOB) access to their audit records, therefore they would have to violate the laws of the jurisdiction in which they operate in order to comply with the laws of the jurisdiction in which their stock is traded.

“This is a fluid situation and we know that the China Securities Regulatory Commission (CSRC) and the Ministry of Finance (MOF) have discussed a potential solution to this issue with the PCAOB.

“We believe a compromise between US and Chinese regulators is still workable, but we are converting our ADR holdings into Hong Kong shares as we believe it is in the best interests of our clients.”

KraneShares added that it expects all Chinese ADRs to be deemed non-compliant unless a resolution is reached between US and Chinese regulators.

A massive exodus of Chinese ADRs from the United States was reported last year by Chinese financial expert Don Weinland in this Asia Markets article.

“It’s kind of strange to see US regulators and Chinese regulators agreeing on one thing, which is that Chinese companies should no longer be listed in the US,” Weinland said.

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