Baidu Inc may get delist

CrisisInvesting

ByBenjamin Bain

March 30, 2022, 9:51 AM


The Securities and Exchange Commission on Wednesday added Baidu Inc. to a growing list of companies that may get kicked off American stock exchanges because of Beijing’s refusal to permit U.S. officials to review their auditors’ work.

The SEC’s publication of the businesses’ names is required by a 2020 U.S. law that started a three-year clock for firms to comply with inspection requirements that cover all public companies in the U.S. The SEC also added Futu Holdings Limited, Nocera Inc., iQIYI Inc. and CASI Pharmaceuticals Inc. to its provisional list for possible delisting.

Wall Street’s main watchdog has long been expected to crack down on about 200 New York-traded firms with parent companies based in China and Hong Kong because the jurisdictions refuse to allow the inspections. Still, the SEC’s recent publication of companies has jarred investors who’d been hoping for a deal between regulators in Beijing and Washington.

Baidu’s New York-listed shares extended their losses to as much as 2.7% on Wednesday, while the Nasdaq Golden Dragon China Index pared gains to 0.4% at 1:18 p.m. in New York.

Wednesday’s additions bring the total number of firms identified by the regulator to 11.

Read more: How U.S. Is Moving Closer to Delisting Chinese Firms: QuickTake

The U.S. and China have been at odds for two decades over the mandate that all companies that trade publicly in America grant access to audit work papers. Since Congress passed the law in 2020, the Public Company Accounting Oversight Board, which oversees auditors, and the SEC have been laying the groundwork for identifying companies that don’t comply.

Firms face removal if they shirk requirements for three straight years, meaning they could be kicked off the New York Stock Exchange and Nasdaq as soon as 2024.

Critics say Chinese companies enjoy the trading privileges of a market economy -- including access to U.S. stock exchanges -- while receiving government support and operating in an opaque system. But regulators in Beijing argue that Chinese national security law prohibits them from turning over audit papers to U.S. regulators.

For its part, Baidu, China’s online search leader, has been hammered by Beijing’s crackdown on private industry. The company is in the process of transitioning from a marketing company to a tech supplier.

As one of the earliest and largest Chinese tech giants to go public in New York, its addition to the SEC list sends a stark warning to smaller peers.

— With assistance by Nick Turner

(Updates with delisting totals, details starting in fifth paragraph.)
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