SEC flags Baidu, iQiyi and Futu over delisting risk

The US Securities and Exchange Commission has added Baidu (9888), iQiyi and Futu to a growing list of companies that may get kicked off American stock exchanges because of Beijing's refusal to permit US officials to review their auditors' work.

The contentious issue has sent Chinese tech stocks tumbling, with Hong Kong's benchmark Hang Seng Index falling 6 percent this quarter.

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

For two decades, the US and China have been at odds 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.

China's securities regulator said both China and the US have a willingness to solve their audit disputes.

SEC chair Gary Gensler tamped down speculation that a deal is brewing to keep about 200 Chinese stocks from losing their listings, signalling that only total compliance with US audit inspections will allow the companies to keep trading on American markets.

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.

Baidu's shares ended 3.2 percent lower in Hong Kong yesterday. In addition, it has been hammered by Beijing's crackdown on private industry, as 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.

The search giant and its video arm iQiyi said they were exploring solutions, without elaborating. Baidu "will strive to maintain its listing status," it said in a filing.

iQiyi's stock fell by 4.8 per cent overnight, before recouping most of its losses to end the day at US$5.04 (HK$39), 0.4 percent higher.