China
Can Hong Kong Leverage US Delisting Risks for Chinese Companies?
Chinese companies are increasingly turning to Hong Kong as US delisting risks escalate, particularly following heightened enforcement of the Holding Foreign Companies Accountable Act. The regulatory landscape has shifted, making Hong Kong a more favorable option for continuity in offshore capital access.
US delisting risks are pushing Chinese companies to seek refuge in Hong Kong, which is emerging as a compelling alternative amid rising financial decoupling pressures.
The specter of US-China financial decoupling has returned to the spotlight, following renewed delisting threats from the Trump administration. In February 2025, the administration issued a memo under its “America First Investment Policy” that revived enforcement of the Holding Foreign Companies Accountable Act (HFCAA), signaling that Chinese firms failing to meet US audit standards could once again face expulsion from American exchanges. Treasury Secretary Scott Bessent’s remark that “everything’s on the table” has reignited investor anxiety and prompted firms to reassess their capital market strategies.
The stakes are significant. As of early 2025, 286 Chinese companies remain listed in the US, with a combined market capitalization of over US$1.1 trillion. US institutional investors hold approximately US$830 billion in Chinese equities, underscoring the scale of potential disruption. For many firms, American Depositary Receipts (ADRs) are no longer the secure gateway they once were.
At the core of the delisting dispute lies the long-running issue of audit transparency. Under the HFCAA, foreign companies that fail to meet US audit inspection requirements for three consecutive years face mandatory removal from American exchanges. Chinese authorities have historically blocked access to audit records, citing national security concerns—a tension that has reignited under the Trump administration’s 2025 directive to enforce stricter financial standards.
The potential fallout extends well beyond individual firms. A significant portion of Chinese companies listed in the US trade through ADRs, with a daily turnover of approximately US$8.1 billion, according to Morgan Stanley. If mass delistings occur, institutional divestment from passive funds and index-tracking vehicles could follow, triggering sharp valuation drops and disrupting global investor portfolios. Goldman Sachs has warned that US institutional investors may need to offload substantial holdings if financial decoupling deepens further.
Recent history offers cautionary signals. In 2020, Luckin Coffee was delisted after accounting fraud revelations, and several high-profile companies—including Alibaba and PDD Holdings—have since been flagged for noncompliance under HFCAA. These cases underscore the operational and reputational risks firms face as regulatory scrutiny intensifies. For many, the need to secure a more stable and geopolitically insulated listing venue has become a strategic imperative.
As delisting risks intensify, Hong Kong has emerged as the most viable alternative for Chinese firms seeking continuity in offshore capital access. Compared to the 2020 audit crisis, the city is now significantly more prepared—offering a regulatory, liquidity, and policy environment tailored to absorb and support these transitions.
| This article was first published by China Briefing , which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, and India . Readers may write to info@dezshira.com for more support. |
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