![]() I think it’s worth pointing out the shifts we’ve seen in the political landscape over the past few years. That means the delisting risk is off the table, at least for now. But so far, they’ve been given access to all audit records requested. ![]() This law states that companies that prevent the Public Company Accounting Oversight Board (PCAOB) from conducting inspections will be delisted from US exchanges. That same year, we also saw the introduction of the Holding Foreign Companies Accountable Act. ![]() This included Chinese telecom companies such as China Telecom, and they were therefore forced to be delisted from the NYSE. The SEC started paying attention and has been trying to improve the quality of accounting in overseas listed Chinese companies.Īfter President Donald Trump’s Executive Order 13959 in 2020, it became illegal for American citizens to own shares in Chinese military-linked companies. In the early 2010s, a series of accounting scandals among Chinese overseas listed companies shook the market, including Sino-Forest in Toronto and Longtop Financial. Many Chinese investors call ADRs “concept stocks” (概念股). Many Chinese ADRs using such VIE structures pay out capital previously raised overseas, and their dividend yields tend to be low. Since China’s law prohibits foreign ownership in sensitive sectors like technology, Sina set up an offshore company in the Cayman Islands that had an agreement with Sina’s main business in China to transfer profits.įollowing Sina’s innovation, many Chinese tech companies were listed in the United States, including Baidu in 2006 and Alibaba and JD in 2014. That same year, the Chinese tech company Sina Corporation devised a way to get around China’s foreign ownership restrictions: Variable Interest Entities (VIEs). That was the year when China Telecom was listed on the NYSE as part of a push to impose market discipline on its state-owned enterprises. The next part of the development of China’s ADR market was in the year 2000. Brilliance issued depositary receipts against underlying shares of a Brilliance subsidiary in Bermuda, which only owned part of the entire group. The first Chinese company to list in America in 1992 used this structure: the automaker Brilliance Automotive, which would later form a joint venture with BMW in China. And since they’re not considered securities under US law, they do not need to file reports with the SEC. Unsponsored ones are where banks choose to issue depositary receipts on their own. With sponsored ADRs, the company has a formal agreement with the bank that creates them. It’s worth making a distinction between sponsored ADRs and unsponsored ones. Those listed in America are known as American Depositary Receipts (ADRs), and those elsewhere as Global Depositary Receipts (GDRs). Dividends get passed on to the holders of the depositary receipts at the ratio at which they represent the underlying. These are certificates issued by banks that represent ownership of the underlying shares. ![]() One solution has been to raise capital through so-called depositary receipts. ![]() And finally, there are foreign ownership limits for companies operating in sensitive areas such as technology, media and education.Ĭhinese companies have become increasingly adept and navigating this environment. If a company wants to list its shares overseas directly, it will need regulatory approval. For example, China’s capital controls make it difficult to repatriate capital raised overseas back into China. But due to difficulties in gaining approval for a domestic listing, some companies instead choose to raise capital overseas. When Chinese companies have wanted to raise capital, historically, they’ve chosen to do so at China’s two domestic exchanges: Shanghai and Shenzhen. Zhu Rongji opening the Shanghai Stock Exchange in 1990. ![]()
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