HONG KONG • Shares in dual-listed Chinese firms fell sharply in Hong Kong yesterday, after the US securities regulator adopted measures that would kick foreign companies off American stock exchanges if they do not comply with US auditing standards.
The move by the Securities and Exchange Commission (SEC) adds to the unprecedented regulatory crackdown in China on domestic technology companies, over concerns that they have built market power that stifles competition.
The Holding Foreign Companies Accountable Act, signed into law by then President Donald Trump in December, is aimed at removing Chinese companies from US exchanges if they fail to comply with American auditing standards for three years in a row.
The firms must also prove that they are not owned or controlled by an entity of a foreign government and must name any board members who are Chinese Communist Party officials, the SEC said on Wednesday.
The China Securities and Regulatory Commission did not immediately comment.
In Hong Kong, the news led to a sharp sell-off of US-listed Chinese companies that listed on the city's exchange in the past two years.
Baidu shares - which debuted on Tuesday - dropped 8.85 per cent in early trade. Alibaba Group Holding slipped 4.2 per cent, JD.com fell 4.45 per cent and NetEase was down 3 per cent.
The falls were in contrast to a 0.2 per cent rise in the broader Hang Seng Index and a 1 per cent fall in the Hang Seng Tech Index. The tech index has fallen 11.3 per cent this month.
DailyFX strategist Margaret Yang said the Chinese-listed stocks were also under pressure after it was reported that Beijing may create a state-backed joint venture with domestic tech firms to oversee user data they collect. "The latter probably marks a further tightening of government control over the technology sector," she said.
But shares in Hong Kong Exchanges and Clearing, which runs the city's stock exchange, rose 3.35 per cent. Kingston Securities director Dickie Wong said this was the result of investors expecting more homecoming listings from China's US-listed stocks.
Some analysts said US-listed Chinese firms may be unable to comply with US accounting rules because they could risk violating Chinese law. "It is quite difficult for China to open the accounting of all US-listed companies to US regulatory agencies, especially for some listed companies that involve national security or national data," said Everbright Sun Hung Kai strategist Kenny Ng.
REUTERS
