William & Mary Business Law Review


There is a long history of Chinese firms raising capital on leading U.S. exchanges. These shares have proved attractive and are estimated at $1 trillion value, in spite of deep mismatches between Chinese internal approaches to corporate governance and those taken under U.S. securities regulations. Chinese listings of nonstate firms, particularly in the technology sector, had depended on a largely laissez-faire initial approach to the expansion through foreign listings, including tolerance of the opaque Variable Interest Entity (VIE) structures adopted as a means to bypass Chinese restrictions on foreign ownership. Concerns regarding data security had, however, prevented compliance by Chinese firms listed in the United States with audit inspection requirements, and these mismatches in the United States have now led to Chinese firms being on shaky ground on both sides of the U.S.-China fault-line. U.S.-listed Chinese companies have faced the looming threat of delisting under the Holding Foreign Companies Accountable Act (HFCAA), enacted in response to both non-compliance with audit inspection requirements and concerns about the opaque nature of VIEs and possibilities of Chinese state control. Admittedly, fears of mass delistings under the HFCAA in the near future have been allayed by Chinese agreement as to U.S. audit inspections, and the 2022 finding of two Chinese firms to be compliant with U.S. regulations. There remains, however, heightened levels of Chinese state involvement in the affairs of nonstate companies with further potential to bring strain, as Communist Party policies have changed dramatically in recent years, alongside heightened geopolitical tensions. The data concerns that had prevented audit inspections have not disappeared and, in fact, have grown. These, together with some other harmful Chinese state strategies impressed upon nonstate firms and preferences for Chinese firms to look inwards for capital, as well as a damaging trade war in semiconductors, present remaining concerns regarding investments in U.S.-listed Chinese firms. Immediate concerns regarding delistings under the HFCAA may have abated but there may be other firms for which compliance may be difficult, and there remains potential for future delistings, presenting risks for U.S. investors. These Chinese firms may find the exit voluntarily whilst the stream of U.S. listings by Chinese companies will slow. It will not yet amount to a decoupling, but investors should be wary.