Trade War Escalation Causes Chinese Stocks to Be Delisted from Wall Street Simulation

Amid concerns that the trade standoff between the US and China may extend to the financial sector, Wall Street analysts have been simulating scenarios where Chinese companies are delisted from American stock exchanges.

Analysts and strategists from JPMorgan Chase, Morgan Stanley, Jefferies Financial Group, and UBS Group have released reports evaluating the risks faced by over 200 Chinese companies listed in the US, commonly known as Chinese concept stocks.

As of March 7th, there were a total of 286 Chinese companies listed on US exchanges with a combined market value of $1.1 trillion. Compared to the same period in 2024, the number of Chinese concept stocks has slightly increased, but their market value has seen a decline in the past month.

Wall Street analysts generally believe that if Chinese concept stocks are delisted, companies like the parent company of discount e-commerce platform Pinduoduo, Vipshop, and education institution TAL Education Group may face the most severe impact.

These companies are among the few Chinese firms listed in the US but without Hong Kong-listed shares for their American stock conversions (ADR, American depositary receipts).

According to JPMorgan Chase’s estimates, if these companies are delisted, they could be removed from global indices, leading to around $11 billion in passive fund outflows, with $9.4 billion expected to come from Pinduoduo.

Concerns about the delisting of Chinese concept stocks also emerged during Trump’s first term. At that time, a dispute arose because the Chinese government did not allow direct auditing of the financial statements of Chinese-listed companies by US regulatory authorities. Subsequently, the Securities and Exchange Commission (SEC) introduced delisting provisions in 2021 under the Foreign Companies Accountability Act passed by Congress, triggering a wave of Chinese concept stock relistings.

In 2022, after concessions from Chinese authorities, an agreement was reached on audit procedures, allowing US regulators to audit the original documents of Chinese concept stocks.

Shortly after the start of Trump’s second term, an executive order was issued directing the government to strengthen scrutiny of US investments in Chinese companies.

On April 9th, US Treasury Secretary Scott Bessent stated that with the escalation of the US-China trade war, if Beijing does not compromise, the US does not rule out the possibility of delisting Chinese concept stocks from American exchanges.

When asked by Fox Business News about the possibility of delisting if Beijing does not concede in the trade war, Secretary Bessent did not hint at any US backpedaling.

“I believe all possibilities are being considered,” Bessent said, then discussing US export controls on goods and capital to China.

He added, “This will be decided by President Trump…I believe this issue will be resolved at the highest leadership level.”

Bloomberg reported that the Trump administration has numerous tools to implement the delisting of Chinese concept stocks. One option is for the SEC to order exchanges to delist Chinese or Hong Kong companies or entirely cancel the registration of these firms for US trading — even revoking their qualifications for over-the-counter market trading.

For instance, Didi Global and Luckin Coffee, despite being delisted from US exchanges, still have over-the-counter market trading.

The SEC can also invoke emergency powers to halt trading, but if a similar directive comes from the White House, the enforcement may be stronger and swifter.

Another option is to require the SEC to issue final rules banning the use of Variable Interest Entities (VIEs). VIEs are the business structures mostly used by Chinese and Hong Kong companies for trading in the US, which Trump also mentioned in his executive order.

Both options would be more potent than the Foreign Companies Accountability Act invoked in 2021.

An analyst at Jefferies, Edison Lee, stated in a report that the US has two strong cards: delisting of ADRs and an investment ban on Chinese companies. The US’s retaliatory tariffs not only concern trade but are more about competition between the US and China to ensure victory.

Wall Street generally anticipates that the delisting of Chinese concept stocks will inevitably lead to liquidity concerns in the short term. Delisting panics in 2021 and 2022 caused an average 22% drop in Chinese concept stocks.

The Jefferies report points out that currently, the trading volume of some US American depositary receipts (ADRs) is much higher than their stock listed in Hong Kong.

Data from Morgan Stanley also shows that the daily trading volumes of Alibaba and JD.com’s ADRs are about 80% higher than their Hong Kong-listed stocks.

In a report, Laura Wang, Chief Stock Strategist for China, wrote that in the event of delisting, especially if all ADR companies are delisted simultaneously, it would signify a significant escalation of geopolitical tensions between China and the US, leading to increased valuation risks in the Chinese stock market due to equity risk premiums.

The report states that ADR companies without dual listings in Hong Kong would face greater downside risks than those already dual-listed.

Wang believes that in the short term, forced delisting could cause market chaos if shareholders find it difficult to convert US ADRs to Hong Kong stocks or simply do not want to hold them. However, in the long term, the Hong Kong market may be able to compensate for the impact on trading volumes, especially for some large Chinese companies.

Goldman Sachs estimates that there will be 27 Chinese concept stocks with a total market value of $184 billion that will either pursue primary dual listings or secondary listings in Hong Kong in the future.