Five Chinese state-owned companies have announced plans to delist voluntarily from Wall Street before the US forces them out in 2024 over an audit dispute, marking an escalation in the financial decoupling of the world’s two largest economies.
The announcements by state-owned groups including PetroChina, Asia’s largest oil and gas producer, and China Life Insurance Company, one of the country’s biggest state insurers, come as Beijing and Washington struggle to reach a deal that would halt the delisting of about 200 US-listed Chinese companies worth more than $1tn.
Other state-run companies that announced plans to delist from the New York Stock Exchange on Friday included Aluminium Corporation of China, the country’s largest aluminium producer, China Petroleum & Chemical Corp, or Sinopec, and Sinopec’s petrochemicals subsidiary.
The listings have a combined market capitalisation of more than $318bn, although analysts said most trading in the companies’ shares already took place in Hong Kong or mainland China.
“This is a tactical, political move,” said Dickie Wong, head of research at Kingston Securities in Hong Kong. Wong said that other Chinese state-owned companies were likely to delist as tensions between Washington and Beijing worsen.
“But for the privately owned companies like Alibaba, we’ll have to wait and see,” he added.
The US has demanded that Chinese companies and auditors make their financial audits available for inspection every three years by the Public Company Accounting and Oversight Board, the audit watchdog, or face a ban on trading in their US-listed securities.
In a statement released immediately after the delisting announcements, the China Securities Regulatory Commission said the companies in question had “strictly abided by the US capital market rules and regulatory requirements since their listing in the country, and the delisting choices were made out of their own business considerations”.
Beijing has typically resisted allowing Chinese companies to provide data to foreign regulators on national security grounds but has made some concessions over its data secrecy rules in an attempt to prevent the mass delisting. In April, it modified a decade-long rule that restricted the data-sharing practices of overseas companies.
The Financial Times reported in July that Chinese regulators were examining a categorisation system for companies based on the sensitivity of their data, which would result in some voluntary delistings.
Eugene Weng, a Shanghai-based attorney at the firm Wintell & Co who represents Chinese companies listed abroad, said the fact that the delisting announcements were made simultaneously meant the companies should have “received the blessing of higher regulatory bodies” in Beijing.
“It’s reasonable that Chinese state-owned firms want to reduce their financial exposure offshore, especially when they’re facing both stricter enforcement of the Holding Foreign Companies Accountable Act and domestic restrictions on cross-border data transfers,” said Weng.
The PCAOB will make a declaration at the end of next year on whether China has complied with its audit disclosure requirements. For the jurisdiction to be considered compliant, the regulator must have been able to inspect the audit files of any of its companies whose securities are traded in the US.
A former senior official at the US Securities and Exchange Commission said that rhetoric from US regulators on the audit issue had recently become “strident”.
“It is the kind of language that suggests they know there’s no deal that is going to be done with China and Hong Kong,” the former official said.