A group of U.S. lawmakers recently sent a joint letter to the U.S. Securities and Exchange Commission (SEC), requesting the delisting of 25 Chinese companies, including Alibaba and Baidu, from U.S. stock markets, citing national security concerns and ties to the Chinese military. They believe that although these companies are commercial entities, they may assist the Chinese Communist Party in advancing military modernization, surveillance technology, and even human rights violations, posing an "unacceptable" risk to American investors.

These lawmakers pointed out that Chinese law allows companies to conceal their relationships with the government, making it difficult for regular information disclosures to cover all risks. For example, the automotive sensor company Hesai has been listed by the U.S. Department of Defense as a "military-related enterprise," and Tencent Holdings and Daqo New Energy have also faced sanctions or been placed on the entity list due to security and human rights issues.

The legal basis stems from the Holding Foreign Companies Accountable Act (HFCAA), which authorizes the SEC to suspend trading and initiate delisting procedures for companies that have not passed audits for two consecutive years or have not adequately disclosed their ties to foreign governments. The new SEC Chairman, Paul Atkins, will take office in April 2025, and the market generally expects him to accelerate compliance reviews of Chinese companies. Given that April is the deadline for most listed companies' fiscal year reports, if the audits are non-compliant, the delisting process could begin as early as 2026.

A potential wave of delistings could have a significant impact on the market. As of March 2025, there are 286 Chinese companies listed in the U.S. with a total market value exceeding $1 trillion. Goldman Sachs has warned that a financial decoupling between the U.S. and China could trigger a $2.5 trillion asset sell-off. Companies like Alibaba, which have a high retail investor ownership ratio, could see panic selling if delisted, leading to liquidity issues.

The Chinese government has expressed strong opposition through its embassy in the U.S., accusing the U.S. of abusing the concept of national security, politicizing trade and technology issues, and attempting to curb China's development. The SEC has stated that it will respond to the lawmakers' letter, but specific measures have yet to be announced.

In the future, two points will be closely watched: whether the SEC will initiate delisting procedures under the HFCAA; and the possible countermeasures that China may take. Investors should closely monitor subsequent developments and timely assess the risks of their holdings.