Chinese concept stocks delisting: Will the 'wolf really come' this time? Don't worry, it's not doomsday!

Since U.S. President Trump officially announced "reciprocal tariffs" on April 3, China and the U.S. have repeatedly raised tariffs on each other, with current bilateral tariffs exceeding 100%. As trade tensions escalate, there is a risk that the rivalry between the two countries could spill over into other areas.

Notably: ① Recently, the U.S. Treasury Secretary suggested that forcing Chinese companies listed in the U.S. to delist could be one of the bargaining chips in negotiations between the two countries; ② On February 21, the White House released the "America First Investment Policy" memorandum, which also mentioned the possibility of restricting U.S. investment in certain Chinese companies/assets under certain conditions.

Although these two potential risks remain verbal for now, with no substantive action taken by the U.S. government, history shows that threats of delisting Chinese stocks are not unprecedented: From 2020 to 2022, the U.S. government formally pushed for the delisting of Chinese companies from U.S. exchanges under the HFCAA, citing the inability to obtain audit oversight rights.

Despite subsequent agreements between the Chinese and U.S. governments preventing a full-scale delisting, companies like China Mobile were forced to delist during the dispute, while others like PetroChina chose to delist voluntarily after tensions eased.

Thus, whether it's forcing Chinese stocks to delist from U.S. markets or banning U.S. investment in Chinese assets, while the probability of implementation is low, these are "black swan" risks with precedents that cannot be ignored.

Dolphin Research also explores the risks of overseas-listed Chinese assets being forcibly delisted or banned from investment:

1. If the risk materializes, how would it affect the companies covered by Dolphin Research, and which companies would be more or less impacted?

2. How would this differ from the delisting crisis of 2021–22?

3. If forced delisting or investment bans occur, how should investors respond?

Detailed analysis below:

I. Lessons from the Past: A Review of Historical "Delistings" and "Investment Bans"

First, let’s revisit the triggers, legal bases, and outcomes of past U.S. government efforts to delist Chinese stocks and ban U.S. investment in Chinese assets.

1. The 2020–22 Chinese Stock Delisting Crisis: From Start to Finish

① Cause: The crisis began in mid-to-late 2020 when the U.S. government passed the HFCAA, requiring U.S.-listed companies that failed to meet PCAOB audit oversight requirements for three consecutive years to be banned from U.S. exchanges.

② Negotiations: In early 2022, the U.S. government proposed the "Accelerated Accountability" draft, shortening the delisting threshold to two years and adding 150 Chinese companies to the "pre-delisting list." The risk peaked.

Fortunately, the Chinese government adopted a cooperative stance, compromising on audit oversight rights and reaching a preliminary agreement with the PCAOB in August 2022. The delisting risk subsided significantly.

③ Resolution: In September 2022, PCAOB teams conducted audits in Hong Kong, and by December, the PCAOB gained oversight authority over mainland and Hong Kong audit firms, completing its first review. The crisis was largely resolved.

④ Impact: Despite the resolution, the crisis had severe consequences. From June 2021 to March 14, 2022 (when the SEC added 150+ Chinese companies to the pre-delisting list), the average stock price of 19 tracked Chinese companies fell by 60%, with most dropping over 40%. Seven hit five-year lows.

While delisting fears weren’t the sole cause, they significantly pressured stocks. Even after the crisis, state-owned firms like PetroChina and Sinopec chose to delist voluntarily, while others accelerated secondary listings in Hong Kong to reduce reliance on U.S. markets.

2. Restrictions on U.S. Investment in Chinese Assets

Beyond delisting, Chinese assets face the risk of U.S. investment bans. Precedents include the CMC and NS-CMIC lists (targeting entities linked to China’s military-industrial complex) and the "America First Investment Policy".

① The CMC list restricts defense-related dealings but doesn’t ban investment. Companies like Xiaomi and Tencent were briefly listed but removed after appeals.

② The NS-CMIC list explicitly bans U.S. investment, triggering forced sell-offs. It primarily targets military-linked or state-owned firms but also includes private companies like Huawei and SenseTime in AI/chip sectors.

③ The "America First Investment Policy" memo (not yet law) proposes restricting U.S. investment in Chinese firms advancing strategic technologies like semiconductors, AI, and aerospace.

II. A New Delisting Crisis: How Is It Different?

If risks materialize, how would Chinese assets be affected? Key differences from 2021–22:

1. Higher Uncertainty

Unlike the audit-focused 2020–22 crisis, this potential delisting appears more politically driven and unpredictable, given Trump’s erratic tariff policies. Compromises may involve core interests.

2. Reduced Reliance on U.S. Markets, but Liquidity Remains Dominant

While Hong Kong trading volume for dual-listed Chinese stocks has risen from 10% (March 2022) to 34%, U.S. liquidity is still double Hong Kong’s. Delisting would hurt liquidity, especially for:

① U.S.-only listings (e.g., PDD, DIDI, Luckin).

② Dual-listed firms with low Hong Kong trading shares (e.g., Bilibili, Baidu).

③ Hong Kong-primary listings (e.g., Meituan, Tencent) would face minimal impact.

3. Hong Kong as a Fallback for Most

If delisted (without investment bans), companies can:

① Convert U.S. shares to Hong Kong primary listings (for dual-primary firms).

② Expedite Hong Kong primary listings (for others, except ZEEKR, DIDI, and Luckin, which face technical hurdles).

III. The Bigger Risk: U.S. Investment Bans

1. U.S. Investors Still Hold Significant Stakes

Bloomberg data shows U.S. investors hold ~40% of tracked Chinese stocks (higher than actual due to reporting methods). Firms like Bilibili, Alibaba, and XPeng have above-average U.S. ownership, while NetEase and Li Auto have lower exposure.

NS-CMIC-listed firms (e.g., SMIC) have near-zero foreign ownership, suggesting bans could trigger broader sell-offs.

2. Precedent: CNOOC

When CNOOC was added to the NS-CMIC list in 2021, its U.S./European ownership (~12%) was sold off within months, causing a 25% price drop. However, its stock has since tripled, showing long-term resilience.

For Chinese stocks with higher foreign ownership (~40%), bans could cause deeper, prolonged declines.

IV. Conclusion: How to Respond

Key takeaways:

① This delisting risk is more politically uncertain than the 2020–22 audit crisis.

② Firms in AI, chips, and advanced tech face higher ban risks.

③ U.S. liquidity remains critical, but Hong Kong listings mitigate delisting impacts (except for ZEEKR, DIDI, Luckin).

④ If banned, high foreign-owned stocks (e.g., Bilibili, Alibaba) could suffer severe short-term drops, but quality firms may recover long-term.

Strategy: For delistings, holding quality assets may work. For bans, exiting early and re-entering post-crash could capitalize on forced sell-offs.

Risk Disclosure: Dolphin Research Disclaimer