On Wednesday, the US Securities and Exchange Commission (SEC) added five more Chinese companies, including search giant Baidu and video streaming site iQiyi, to a growing list of companies that may face delisting from the US stock market. Market analysts expect the list to grow.

Why it matters: The US regulator’s possible delisting push targeting Chinese companies brings further uncertainty to volatile Chinese tech shares, which have experienced a turbulent year due to regulatory crackdowns in their home country.

  • The SEC’s delisting moves may expand. Paul Gillis, an accounting professor at Peking University, wrote in a March 24 tweet that he believes all 271 Chinese companies listed in the US will eventually be added to the delisting list after they file annual reports with an opinion from a Chinese auditor, which is due May 2. Bill Bishop, the author of the China commentary newsletter Sinocism, echoed a similar view in the Thursday newsletter
  • On March 16, Vice Premier Liu He held a high-level meeting. He signaled China’s willingness to discuss with US authorities to keep the country’s companies investible in the US, saying that a concrete cooperation plan is underway while officials of the two countries are “maintaining good communications.”

Details: In a Wednesday statement, the SEC named five Chinese companies – Baidu, iQiyi, online brokerage platform Futu Holdings, aquaculture equipment provider Nocera, and biopharmaceutical company CASI Pharmaceuticals Inc. – to its provisional list for possible delisting.

  • The US regulator gives these companies 15 business days to submit evidence to oppose the commission’s charge, meaning a deadline of April 20.
  • On Wednesday, Baidu closed down 2.6% on the Nasdaq market. iQiyi closed up 0.4% but dropped 3.8% in after-market trading. Futu slid 2.9%. 
  • Baidu said in a Thursday response that it has been “actively exploring possible solutions.” The company pledged to comply with applicable laws and regulations in China and the US and strive to maintain its listing status on Nasdaq and the Hong Kong stock exchange.
  • The market reaction was calmer compared to the SEC’s first round of delisting announcement of Chinese companies on March 10. Share prices of included companies tumbled as much as 25% back then. A more expected move from the SEC and Chinese regulators’ previous proactive stance may help explain the market reaction.

Context: In December 2020, the Holding Foreign Companies Accountability Act (HFCAA) became law in the US. The statute bars the trading of non-US companies on the US stock market if it can’t provide accounting access to US regulators for three consecutive years. Chinese laws have long prohibited foreign regulators from accessing Chinese capital market documents, putting US-listed Chinese companies in the crosshairs of HFCAA. The aforementioned Chinese companies are among the first batches to be identified for being in alleged breach of the act.

  • Wednesday’s announcement brought the total number of companies on the SEC’s delisting watchlist to 11 after naming six firms earlier this month. On March 10, the SEC put five Chinese companies on potential delistings for the first time. They are fast-food chain Yum China Holdings, biotech groups BeiGene, HutchMed Limited, Zai Lab Limited, and technology firm ACM Research. It added Weibo to the list on March 23.

The article has been updated with Baidu’s statement. 

Emma Lee (Li Xin) was TechNode's e-commerce and new retail reporter until June 2022, when she moved to Sixth Tone to cover technology and consumption. Get in touch with her via lixin@sixthtone.com or Twitter.