Will Chinese Concept Stocks Disappear?

"I Hope It Doesn't Happen."

By Jiaxiang Shi

Edited by Zhiyan Chen

The situation is shifting. As tariff tensions continue to spread, reports of pressure on Chinese concept stocks from across the Pacific have grown increasingly frequent — on April 9, U.S. Treasury Secretary Scott Bessent stated that delisting Chinese stocks from U.S. exchanges was "not off the table"; on the evening of April 10, U.S. media reported that incoming SEC Chair Paul Atkins might "move toward delisting shares of Chinese companies from U.S. exchanges."

With both sides locked in confrontation, Chinese concept stocks are becoming a significant bargaining chip.

But unlike three years ago, when Chinese concept stocks faced delisting risks over audit issues, the major players — having learned their lesson — have largely prepared themselves: the destination is Hong Kong; the method is dual primary listing.

A "dual primary listing" means a company holds listed status on two exchanges simultaneously, shielding it from fallout if its status changes on one exchange. Currently, over 200 companies in Hong Kong are dual primary listed. The previous turmoil, to some extent, spurred Alibaba, Zhihu, and KE Holdings to pursue dual primary listings in Hong Kong.

"I have directed the Securities and Futures Commission and Hong Kong Exchanges and Clearing to stand ready so that if overseas-listed Chinese concept stocks wish to return, Hong Kong must be their preferred listing destination," wrote Hong Kong Financial Secretary Paul Chan Mo-po in a public article.

According to Goldman Sachs estimates, 27 Chinese concept stocks with a combined market cap of 1.35 trillion RMB may be eligible for dual primary listings or secondary listings in Hong Kong, including Pinduoduo, Full Truck Alliance, Futu, RLX Technology, and iQIYI. This could be a significant opportunity for HKEX to boost liquidity. But for companies, the capital markets turbulence presents a considerable challenge.

The most precarious position belongs to small-cap stocks with market caps below $100 million that cannot meet Hong Kong listing standards. Tian Mingzi, partner at Jingtian & Gongcheng, told Waves that in a worst-case scenario, these small-cap stocks would face liquidation, over-the-counter transfer, or privatization.

Multiple lawyers interviewed by Waves believe the probability of a complete delisting of Chinese concept stocks is not high.

"If they really do this, it wouldn't just harm Chinese companies — it would hurt many American investors and Wall Street interests," Tian said. In any case, "Chinese concept stocks are a very important part of the international market."

Ruiyuan Zhang, partner at U.S. law firm Gunderson Dettmer, also said the probability of targeted U.S. measures forcing delistings is low, and if it happened, the controversy would be significant. "Just like the earlier bill targeting a single company, TikTok, there was considerable debate in American legal circles," he said.

An investor once said that Chinese concept stocks and China's dollar-denominated VC industry both depend on a honeymoon period in U.S.-China relations. Perhaps there truly is no such thing as a permanently sweet relationship. With the situation still unresolved, everyone needs to find ways to move forward on their own.

On the possibility of delisting, how companies have prepared over the past three years, and how to plan for the worst, we spoke with Tian Mingzi, partner at Jingtian & Gongcheng; Ruiyuan Zhang, partner at Gunderson Dettmer's Beijing office; and Gang Liu, partner at Fangda Partners.

Below are their views and responses, edited by Waves —

Waves: How do you view the current wave of delisting rumors surrounding Chinese concept stocks?

Tian Mingzi: Honestly, I'm a bit immune to it at this point — it's not the first time, just more complex. For already-listed companies, stock prices may fluctuate dramatically, affecting refinancing and future planning.

Also, companies going public in the U.S. now — apart from relatively well-known names like Chagee — many aren't familiar to the public. Companies listing on U.S. markets in recent years no longer have the household-name recognition of those from a few years back.

Waves: How is today's situation different from the previous delisting risk Chinese concept stocks faced due to audit issues?

Tian Mingzi: Comparatively speaking, there was more panic back then, including around audit policies — no one knew how to negotiate or operate. Over the intervening years, some agreements were reached, and solutions emerged.

But now, if previous negotiation foundations are discarded and mandatory delisting is imposed, that's more complex social and economic forces at work. If they really do this, it wouldn't just harm Chinese companies — it would hurt many American investors and Wall Street interests. The impact would be substantial.

Waves: Why is the situation better than three years ago?

Tian Mingzi: One important reason is that some leading Chinese concept stock companies have made preparations, including secondary listings and dual primary listings.

Simply put, a secondary listing takes a U.S.-listed company's stock and trades it in Hong Kong, adding some liquidity opportunities. But it's not independent — it relies on the U.S. listing, and review conditions are relatively relaxed.

A dual primary listing is equivalent to a U.S.-listed company also doing a primary listing in Hong Kong, meeting all of Hong Kong's review conditions and standards. If delisted from the U.S., it remains a listed company in Hong Kong.

Gang Liu: In 2022, the Holding Foreign Companies Accountable Act and cross-border audit inspection requirements triggered considerable delisting concerns among Chinese concept stocks, prompting many companies to either pursue dual primary listings in Hong Kong or first apply for secondary listings there, with the option to later convert to dual primary listings. Currently, over 200 companies in Hong Kong are dual primary listed, with about a dozen secondary listed companies.

From a sudden-impact perspective, after the previous policy shock, each recurrence of this topic has had diminishing market impact. Meanwhile, with so many cases of returning to Hong Kong listings, similar pathways have become more mature than two years ago.

Ruiyuan Zhang: Compared to the sudden situation in 2021, more U.S.-listed Chinese concept stock companies have completed dual listings in the U.S. and Hong Kong, preparing for both scenarios, with many going further to complete "dual primary listings."

In 2019, Alibaba's secondary listing in Hong Kong was a major milestone for the Hong Kong market. The year before, HKEX had made significant changes to its listing rules, including allowing certain tech companies to implement weighted voting rights under certain conditions, and allowing companies with market caps exceeding HK$10 billion to use Hong Kong as a secondary listing venue. At that stage, HKEX said it wanted to "bring Chinese concept stocks home" — they also had performance pressures (laughs).

For Chinese concept stock companies, a major advantage of the Hong Kong market is access to Stock Connect, allowing mainland money to flow directly in — but the prerequisite is completing a dual primary listing.

A recent share from an investment bank friend: for many leading Chinese concept stock companies, Hong Kong actually accounts for the larger share of primary trading volume.

Waves: If we plan for the worst and Chinese concept stocks are substantially delisted, what impacts would that bring?

Tian Mingzi: That would mean the U.S. market for Chinese concept stocks might essentially disappear.

In the short term, the impact on companies themselves would be significant — stock price declines, sharp market cap contraction. Funds and investors would also be forced out.

U.S. stocks fall into several categories. Those with dual primary listings in Hong Kong have a hedge market. Those with secondary listings would need to see if they can convert to primary listings. Another category is those that did nothing — they might take direct hits.

There's another issue here: most small-cap U.S. stocks, say those with market caps below $100 million, cannot return to Hong Kong. The U.S. market may be one of the very few places they can list. They'd either be delisted to over-the-counter markets, privatized, or liquidated. This may be the worst impact.

Gang Liu: In the short term, there would be painful adjustments including stock sell-offs, price pressure, and sharply contracted liquidity. For Chinese concept stocks and companies originally planning U.S. listings, the fundraising function of U.S. capital markets would be substantively obstructed, prompting companies to consider relocating listings or multi-jurisdiction listings to disperse policy risk. Investment decisions in certain sectors and directions may become more cautious.

In the long term, if U.S. capital markets close their doors to Chinese companies, it would transmit to more entrepreneurs' and investors' strategic positioning.

Ruiyuan Zhang: There would inevitably be impact on the primary market. An investor once joked that if a portfolio company wanted to list in Hong Kong, he'd break its legs. If Hong Kong becomes the only option now, Hong Kong's overall liquidity and valuation for tech stocks remain relatively low compared to U.S. markets. Lower secondary market valuations would also put pressure on primary market investment valuations.

Waves: Some major companies that haven't completed secondary or dual primary listings during this period — most notably Pinduoduo, with its low PE ratio and ample cash flow — is privatization a possibility?

Ruiyuan Zhang: Privatization can't be ruled out and would be one option. The most common privatization in practice involves management forming a buyer group with investors to launch the transaction. If forced delisting really occurs, one option would be privatization — management or a buyer group acquires public shareholders' shares, then considers relisting in Hong Kong or remaining private.

Gang Liu: At this stage, some Chinese concept stock companies that haven't yet completed secondary or dual primary listings may consider privatization as one strategic option. However, whether to choose privatization ultimately depends on a comprehensive assessment and careful consideration of the company's own situation.

Waves: Why hasn't a company at Pinduoduo's level done a secondary or dual primary listing?

Tian Mingzi: We also have clients wanting to do secondary or dual primary listings. The main obstacle is that HKEX requirements for such listings are quite high, especially for companies with weighted voting rights. And since 2023, secondary or dual primary listings for Chinese concept stocks also require filing with China's securities regulator, with VIE-structured companies needing to solicit opinions from more parties.

Reasons for not pursuing secondary or dual primary listings can be quite diverse, with regulation being one important factor.

Waves: U.S. markets were once the preferred listing destination for most companies — will Hong Kong replace the U.S. as their first choice going forward?

Tian Mingzi: Companies do have preferences for different capital markets, but strictly speaking, where to list isn't entirely up to the company itself. A-shares and Hong Kong IPOs still have higher initial thresholds compared to U.S. listings, and many smaller companies can only go to the U.S.

For a long time, many domestic companies have preferred A-shares when possible. Hong Kong also has H-shares and red-chip structures — different companies have different needs, and Hong Kong can also satisfy international requirements. In the past two years, H-shares have increased, encouraged and supported by regulators. Red-chip structures, whether going to Hong Kong or the U.S., face stricter regulation than before. And many companies with red-chip structures likely still need to pursue overseas markets because capital flows more freely.

Given the current complex international situation, if A-shares aren't viable and Hong Kong listing conditions can be met, Hong Kong can be prioritized.

Waves: Hong Kong Financial Secretary Paul Chan Mo-po said Hong Kong will actively attract returning Chinese concept stocks — what specific processes does this "return" involve?

Gang Liu: The general process includes submitting a listing application (some applicants also conduct pre-application consultations before formal submission), passing HKEX review and hearing, conducting investor presentations, determining the offering price, and finally listing and trading. Additionally, before HKEX arranges the hearing, the listing application needs to complete filing procedures with China's securities regulator.

Waves: In the current moment, how should individual or institutional investors face this turbulence?

Ruiyuan Zhang: The U.S. traditionally implements regulation at a relatively cautious pace. Even the recent U.S. "outbound investment review regime" born of geopolitics went through several rounds of comment solicitation, taking over 500 days, and from finalization to formal effectiveness, there were still several months. This pace is relatively normal and appropriate, though U.S. government regulatory uncertainty has indeed increased substantially now.

Many people like to stretch out index fund curves, saying that despite so many black swans, the past 20 years still show very beautiful growth curves. But in reality, for individual investors, no one's investment horizon can always be 30 years. If this time it's the 1930s Great Depression, or if you lose your capital in this crisis, you can't get back to the table.

So moderate consideration of short-term and conservative judgments is necessary.

Image source | NYSE official website

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