Chinese ride-hailing company Didi Chuxing is delisting from the New York Stock Exchange and pursue a listing in Hong Kong as the US market regulator adopts rules that would allow them to delist foreign companies from Wall Street exchanges for not complying with disclosure requirements.
Didi’s move and the new rules mark an escalation in the financial decoupling between the US and China that has led to the departure of several Chinese companies from American exchanges.
What are the new rules?
The Securities and Exchange Commission (SEC) has put in place amendments to implement the Holding Foreign Companies Accountable Act (HFCAA) that requires foreign companies to disclose whether they are "owned or controlled" by a government. The rule allows the market regulator to scrutinise the books of the foreign companies or risk being kicked off from Nasdaq and the New York Stock Exchange within three years.
In 2020, the law was passed when Chinese regulators denied requests from the Public Company Accounting Oversight Board to inspect the audits of Chinese firms trading in the US.
China and Hong Kong are the only two countries that do not allow regulators to inspect books. The law also made it mandatory for Chinese firms to name Communist Party members on their board of directors.
"We have a basic bargain in our securities regime... If you want to issue public securities in the US, the firms that audit your books have to be subject to inspection by the PCAOB," SEC chair Gary Gensler said in a statement.
According to the SEC, currently there are about 220 firms that are opposed to PCAOB inspections.
Didi’s withdrawal
Didi has been under pressure from regulators in the US and Europe. The company had listed on the New York Stock Exchange at the end of June, raising $4.4 billion from the New York IPO. However, trading was muted amid growing tensions between Washington and Beijing and warnings of US regulators over some Chinese firms' financial reports.
Chinese internet regulator Cyberspace Administration of China (CAC) had also asked online stores not to offer Didi's app as it allegedly collected users' personal data illegally.
According to Bloomberg, the Chinese company was asked by Beijing to withdraw from Wall Street.
Meanwhile, another Chinese firm Alibaba's share price hit its four-year lowest level on rumours of the e-commerce giant exiting the US indices.
