1. A comment from U.S. Treasury Secretary Scott Bessent earlier this month has raised concerns on Wall Street about forced delisting of Chinese stocks from U.S. exchanges.

2. Analysts and the press continue to report on Bessent's comments reflecting the growing level of instability - even ensuring a related article in the tabloid New York Post.

3. The context here is the memorandum "America First Investment Policy" issued by U.S. President Donald Trump at the end of February.



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Big story

The increased regulatory scrutiny of Chinese companies listed in the U.S. has raised concerns about delisting, threatening the decade-long growth of Alibaba and other Chinese companies on U.S. exchanges.

U.S. Treasury Secretary Scott Bessent's general comment "anything can happen" on April 9 has raised concerns on Wall Street that hundreds of billions of dollars could flow out as Chinese stocks face mandatory delisting from U.S. exchanges.

Thanks to the latest version of the law enacted in 2020, the U.S. Securities and Exchange Commission can push for the delisting of Chinese stocks if the company is deemed non-compliant with audit requirements for two consecutive years. Paul Atkins, who was sworn in as SEC chairman on Monday, indicated in a hearing last month that he would maintain that process to closely monitor Chinese stocks listed in the U.S.

Analysts and the press continue to report on Bessent's comments reflecting the growing level of instability - even ensuring a related article in the tabloid New York Post.

Goldman Sachs said in a note last week: "In an extreme scenario, U.S. investors may have to liquidate $800 billion worth of Chinese stocks if they are banned from investing in Chinese securities."

They predict that Chinese investors may also need to sell their financial assets in the U.S., with an estimated value of around $370 billion in stocks and $1.3 trillion in bonds.

KraneShares, the operator of the popular $5.9 billion exchange-traded fund tracking Chinese stocks, told its clients last week that the delisting of Chinese companies is "low probability." Back during a previous delisting concern in 2022, the firm began shifting much of the KraneShares CSI China Internet ETF (KWEB) to hold Hong Kong-listed stocks of Chinese companies listed in the U.S. KraneShares reiterated that approach in the "unlikely event" that Chinese companies are delisted in the U.S.

Alibaba listed additional shares in Hong Kong in 2019, five years after a large initial public offering in New York. While Baidu, JD.com, and several other Chinese companies have also offered shares in Hong Kong in recent years, the parent company of Temu, PDD Holdings, notably has not done so.

PDD did not immediately respond to CNBC's request for comment. This e-commerce company relocated its headquarters from China to Ireland in 2023.

The White House memorandum

The context here is the memorandum "America First Investment Policy" issued by U.S. President Donald Trump at the end of February. This memorandum calls for a review of U.S. investments in Chinese entities, as well as closer scrutiny of public Chinese companies — both through commonly used listing structures and through the law that requires foreign companies to be held accountable that became law in 2020.

Winston Ma, a visiting professor at NYU School of Law, said the memorandum is a joint task for many government agencies, including the SEC, "aimed at enforcing current rules and creating new rules" relating to Chinese companies listed in the U.S.

Ma, the author of "The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace," stated that if regulators act now, they could use the financial reporting period ending in April 2025 as the first year, meaning the second year would end in 2026, completing the necessary "two-year" compliance period for delisting. He said, "Delisting could happen faster than you think."

The Public Company Accounting Oversight Board, under the oversight of the SEC, stated in 2022 that it could review the audit records of Chinese companies that may be affected. Currently, "no issuer is at risk of having its securities subjected to a trading ban" under the law, according to the SEC's website.

The SEC did not immediately respond to CNBC's request for comment, while the PCAOB declined to comment.

Political momentum

The House Select Committee on China last week sent letters to JPMorgan Chase CEO Jamie Dimon and Bank of America CEO Brian Moynihan requesting that the investment banks withdraw from underwriting the Hong Kong IPO of Chinese battery giant Contemporary Amperex Technology. JPMorgan declined to comment, while Bank of America did not respond.

Trump's recent spat with Harvard also means there needs to be a closer examination of how U.S. university endowments earn billions from their investments in China.

The House Committee previously cited research from the Future Union lobbying group regarding how U.S. pension funds and university endowments invest in China.

"Atkins is under pressure to take a decisive stance against decades of duplicitous double standards," said Future Union CEO Andrew King in an email. He is also a managing partner at San Francisco-based venture capital firm Bastille.

"Delisting is overdue, and China has overstepped by obstructing regulators and covering up cases like the Luckin Coffee fraud by not acting," he said. "Now they will lose their pathway to secondary funding without oversight."

China's securities regulator has sought to strengthen oversight of domestic companies listed abroad, especially after ride-hailing company Didi's IPO in the U.S. in 2021 and subsequent delisting. Under the new process of the Chinese securities regulator, some large Chinese companies have been able to list in the U.S. in recent months, including the Chinese bubble tea company Chagee just last week.

As the prolonged delays regarding TikTok's legally binding divestiture have shown, concerns about delisting may be exaggerated — at least in the short term. However, investors may choose to vote with their feet.

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Need to know

The White House is signaling a potential easing of tensions with China. U.S. Treasury Secretary Scott Bessent told investors on Tuesday that he hopes the U.S.-China trade war will cool down in the "very near future," a person in the room told CNBC. These comments came a day after China announced it would retaliate against countries following the U.S. call to isolate Beijing.

Nvidia CEO Jensen Huang visited China and met with several prominent figures. Huang held an official meeting with Chinese Vice Premier He Lifeng in Beijing on Thursday — and reportedly Liang Wenfeng of DeepSeek. The latest Pew Research survey of Americans shows that negative views of China have softened.

Local authorities in China are considering selling bitcoin to bolster empty treasuries. Reuters reported this consideration on Thursday. China has banned cryptocurrencies for years, and cash-strapped local governments have been sitting on seized assets. The unemployment rate among Chinese youth aged 16 to 24 fell to 16.5% in March, down from 16.9% in February, according to official data.

In the markets

Chinese and Hong Kong stocks traded in the positive zone on Wednesday as investors rejoiced over the possibility that U.S.-China trade tensions may ease.

China's CSI 300 index rose 0.15% while Hong Kong's Hang Seng index — which includes several large Chinese companies — rose 2.16% as of 11:00 AM local time.

Since the beginning of this year, the CSI 300 index has fallen 3.7% while the Hang Seng index has increased 9.67%.

China's 10-year government bond yield rose slightly to 1.660%.

China's offshore yuan rose slightly to 7.3049 against the greenback.



Theo CNBC


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