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The China Delisting Drama: A Buy, Sell, or Hold Situation?

Wesley ParkFriday, May 2, 2025 6:35 pm ET

71min read

U.S. lawmakers are pushing the SEC to yank 25 Chinese companies—including alibaba, Baidu, and JD.com—off American stock exchanges, citing national security risks and alleged support for the Chinese Communist Party’s (CCP) strategic goals. This isn’t just a political headline; it’s a seismic shift for global markets. Let’s break down what this means for investors.

The Delisting Threat: Why Now?

The January 29, 2025, letter from Republican leaders John Moolenaar and Rick Scott to SEC Chair Paul Atkins marks the latest escalation in a years-long audit dispute. The crux? Beijing has historically blocked U.S. regulators from inspecting audit records of Chinese firms, violating the Holding Foreign Companies Accountable Act (HFCAA). If unresolved, these companies could face delisting by 2026.

But this isn’t just about paperwork. The move is part of a broader “America First” push under the Trump administration, which sees Chinese firms as vehicles for CCP influence and financial espionage. Think of it as a proxy war in the boardroom.

Hong Kong: The New Wall Street?

As U.S. delisting looms, Chinese firms are fleeing to Hong Kong. Over 75% of U.S.-listed Chinese companies by market value now have secondary or dual listings there. Why? Hong Kong’s 2025 reforms made it a haven for “national champions.” Key moves:

Weighted Voting Rights (WVR): Lets founders like Alibaba’s Jack Ma retain control.
Stock Connect Enhancements: Enabled mainland investors to buy Hong Kong-listed stocks via “patriot premium,” boosting daily turnover to $5.9 billion.

But Hong Kong isn’t just a safe harbor—it’s a geopolitical battleground. While it’s attracting $1.1 trillion in Chinese equities, 45% of its liquidity depends on mainland capital. A stumble in Beijing’s favor could send it into a tailspin.

The Data: What’s at Stake?

Alibaba’s shares have already been battered by regulatory crackdowns and delisting fears, dropping from $319 in 2020 to under $100 today. But is this a buying opportunity?

U.S. daily turnover for Chinese ADRs is $8.1 billion, but Hong Kong’s Southbound Stock Connect trades $5.9 billion daily. If delistings happen, expect a mass exodus—Goldman Sachs warns U.S. investors could offload $800 billion in Chinese equities.

The Investment Call: Buy the Dip or Bail?

The Bulls’ Case:
- Hong Kong’s reforms are real. Over 286 Chinese firms listed in the U.S. are already primed to pivot, and Beijing’s support ensures liquidity.
- ETFs like KraneShares’ KWEB are shifting 67% of holdings to Hong Kong, signaling a managed retreat.

The Bears’ Case:
- Geopolitical risk is existential. Hong Kong’s autonomy is eroding, and international investors may flee if rule-of-law fears grow.
- Delisting could trigger a panic sell-off, especially in passive funds forced to exit non-compliant stocks.

The Bottom Line: A Bumpy Road, but Opportunities Lurk

The delisting drama isn’t a binary “buy” or “sell.” Here’s how to play it:

Go Hong Kong Smartly:
Focus on firms with strong Hong Kong listings and cash reserves. Alibaba and Tencent hold over $150 billion in cash—enough to weather storms.
Avoid “little giants” (smaller tech firms) reliant on U.S. capital.
Watch the ETFs:
KWEB’s pivot to Hong Kong is a roadmap. Follow its holdings to see which stocks are deemed “safer.”
Beware the Domino Effect:
If delistings proceed, $800 billion in forced sales could drag down global markets. Keep some dry powder for bargains.

Final Verdict:

The FT’s report is a wake-up call: $1.1 trillion in Chinese equities are in play, and Hong Kong’s future hinges on balancing Beijing’s demands with global trust. Investors who bet on Hong Kong’s reforms and strong cash-rich firms could profit—if they’re prepared for volatility. This isn’t just about China; it’s about the future of global capital markets. Stay vigilant, but don’t miss the buying opportunities when fear peaks.

Final Number: If Goldman Sachs’ $800 billion offload scenario plays out, and Hong Kong absorbs even half of that, its daily turnover could double to over $11 billion. That’s a game-changer. The question isn’t whether to act—it’s when.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.