Chinese Companies Delay US Listings Due To Escalating Tensions

Chinese companies are delaying their listings on exchanges in the United States as the relationship between the two countries continues to deteriorate.

What Happened

Companies in China, especially those in the early stages of planning, are losing interest in listing on American exchanges after the Luckin Coffee LK accounting scandal and the subsequent U.S. plans to enact stringent norms for Chinese firms, reported Reuters.

Stephen Chan, partner at the law firm Dechert LLP in Hong Kong, said, “We have seen clients putting their U.S. IPO plans on hold for now.” He revealed, “The underlying reason for the slowdown is the relationship between the U.S. and China.

Chan expects the slowdown to continue while tensions prevail.

Why It Matters

Chinese firms have raised $1.67 billion through initial public offerings in New York so far this year and hope to raise another half-billion more. In 2019, they raised $3.5 billion, according to Reuters.

Enquiries about U.S. listings have fallen by half. Chinese companies who were planning on listing in the U.S. are now looking for exchanges nearer to home, a Reuters source revealed.

There are currently 550 Chinese firms listed on  U.S. stock exchanges. New York is favored by Chinese companies as it is considered prestigious and has an international investor base.

Chinese companies have made up a third, or $279 billion raised in the primary markets globally in the past five years. Half of those funds were raised in the Hong Kong and New York markets.

Tensions between the U.S. and China worsened after the Chinese parliament passed a national security regulation impacting Hong Kong’s autonomy.

The U.S. Senate has passed a bill that requires foreign companies to disclose levels of government control. It also requires Chinese companies to adhere to U.S. audit standards.

According to Reuters, Chinese authorities resist audit documents leaving China, making it harder for U.S. regulators to exercise oversight.

Burning Rock Biotech, a cancer test firm, and uCloudlink, a mobile data marketplace, are the two Chinese companies making their debut on American exchanges this week.