By James T. Areddy

A once-symbiotic melding of American capital with Chinese growth is unraveling.

Wall Street's welcome mat for Chinese stock listings long transcended rocky U.S.-China relations. Increasingly, the stock market relationship is succumbing to distrust between the world's two largest economies.

More than 80 Chinese companies have delisted their shares from U.S. exchanges since 2019, according to data provider Wind. Around 275 China-based companies now represent less than 2% of the capitalization of shares traded on the New York Stock Exchange and Nasdaq.

Chinese initial public offerings still pour in -- in fact, 2024 saw the highest number in years -- but most are tiny, highly speculative stocks, not the megabillion-dollar "red chips" of yesteryear. The 62 Chinese offerings last year raised an average of under $7 million. Some struggle to maintain the minimum 300 public shareholders, a red flag for investors that they could be risky or outright scams.

The NYSE hasn't hosted a new listing from China since carmaker Zeekr went public in May 2024.

When Junheng Li launched her research firm JL Warren Capital in 2012, Wall Street was looking east. "China was the 'it' investment theme," Li says. The China-born, Greenwich, Conn.-based Li, who titled her biography "Tiger Woman on Wall Street," built a brand interpreting the financials underpinning Chinese industry.

She has since pivoted: "Directionally, it's an inevitable exit for Chinese companies," says Li, who adds that crypto and artificial intelligence are the more exciting investment opportunities now.

Not long ago, a U.S. listing was the pinnacle of a Chinese company's success, and the NYSE and Nasdaq competed to land hot Chinese IPOs. As Chinese companies gorged on capital, American investors clamored for a piece of China's fast-growing economy.

When online merchant Alibaba listed in 2014, the NYSE adorned its columns with a Chinese flag, and co-founder Jack Ma emerged an instant celebrity. The nearly $25 billion IPO was the world's largest and followed a string of Chinese listings in the U.S., including by internet firms such as Baidu and JD.com as well as government-owned behemoths like China Mobile, China Eastern Airlines and PetroChina.

Today, Alibaba is an anomaly, on its own representing 30% of the capitalization of all U.S.-traded Chinese issues.

No state giants

The best-known Chinese names are mostly gone. For the first time since the 1990s, no Chinese state-owned enterprise trades on an American exchange. China Mobile was forced to delist in 2021 after U.S. authorities imposed sanctions over national-security considerations.

The NYSE -- which on a since-deleted webpage had cheered the Alibaba listing as "a moment emblematic of the truly global nature of capital markets" -- declined to comment on Chinese shares; Nasdaq didn't respond to questions.

Politicians have always criticized Wall Street's links to China. But Washington has rarely sounded so intent to drain American money from Chinese stocks. In a first for a U.S. president, Donald Trump has taken aim at Chinese companies' capital raising in his America First Investment Policy.

Rep. John Moolenaar (R., Mich.), who heads the House Select Committee on China, recently pressed Securities and Exchange Commission Chairman Paul Atkins to limit the presence of what he calls Chinese Communist Party-linked companies on American capital markets. He alleged "many face U.S. government restrictions, maintain hidden Party control mechanisms, secretly support Chinese military applications, or are linked to slave labor."

Atkins also got a letter in May from treasurers and other financial officers of 23 states calling for forcing Chinese stocks off the exchanges. Legislation to divest pension funds of Chinese stocks is moving through various statehouses after a federal policy shift in 2023.

The SEC didn't respond to questions.

Hong Kong now hosts the biggest global IPOs -- sometimes aided by Wall Street, like the $4.6 billion offering by battery group Contemporary Amperex Technology in May that got deal support from Bank of America and JP Morgan.

Freezing Chinese companies out of U.S. capital markets does little good if American investment banks help them list elsewhere, says Andrew King, a San Francisco venture capitalist whose organization Future Union lobbies against investment in Chinese enterprises. "It builds the capital markets in places like Hong Kong using U.S. money," he says.

Listing blowups

Stock investing is inherently risky everywhere, and some Chinese listings have blown up in spectacular fashion.

Shares of Starbucks competitor Luckin Coffee crashed amid allegations of financial shenanigans before U.S. regulators forced it off Nasdaq in 2020, just a year or so after an IPO raised $651 million.

The Luckin case highlighted how Beijing's secrecy laws long made it difficult for U.S. regulators to examine the accounting of China-based firms. In its wake and following delisting threats by Washington, a U.S.-China deal in 2022 gave an American government watchdog rights to inspect audits of listed companies.

Rather than allow American regulators to scrutinize their accounting, two Chinese airlines withdrew listings from the NYSE in 2023. PetroChina, briefly the world's largest company by capitalization, also has left.

Now, only around 10 Chinese stocks would be big enough for the S&P 500.

Scams abound. One China-based investor says he has been involved in schemes to get companies listed that involved finding Americans who, for a few thousand dollars, will open accounts with designated brokerages and give passwords to a third party that controls all trading. He showed text messages pointing to possible manipulation in the shares of a 2024 Nasdaq health-industry listing he worked on that jumped more than 60% above its IPO price within a few weeks, only to trade today 99% below its offering price.

China is now holding back its best companies and has forced some of the U.S. delistings: Just months after ride-hailing firm DiDi Global in 2021 launched a whopper $4.4 billion offering on the NYSE, it withdrew from the market amid a Beijing probe, part of a crackdown on homegrown entrepreneurs.

What could have been one of the biggest New York IPOs in years, by China-founded bargain retailer Shein, was tripped up last year by political headwinds.

"Increasingly, U.S. investors and many global investors are put in a position that it's difficult to invest in the second-biggest economy of the world," says Victor Shih, a professor at University of California San Diego. "There are high-growth companies in China that U.S. investors should be exposed to," he says, citing as an example carmaker BYD.

Now under fire from American critics, including Trump, is a quarter-century-old workaround devised by American investment bankers that made stock-market listings possible for Chinese companies in sectors where Chinese law didn't allow foreign investment, like the internet.

With a nod from regulators in the U.S. and China, Alibaba, Baidu and virtually every major Chinese company traded in the U.S. adopted the "variable interest entity" model pioneered to take Sina.com public in 2000. Unlike a regular stock that represents direct equity ownership of corporate assets, a VIE links investors with contracts, for instance, governing their claim to a company's earnings.

Some critics in the U.S. say American investors have been hoodwinked all along. A congressional letter to the SEC described the VIE structure as a "shell company arrangement that does not afford investors most shareholder rights."

The equities chief for a global investment bank in New York expresses doubt about a wholesale ouster of Chinese listings, saying such threats in the past weren't carried out.

Still, he says, his firm is asking client companies, "How do you insulate yourself if this does happen?"

Alibaba, which didn't respond to a request for comment, three years ago set a possible escape route: It established a second primary-listing in Hong Kong.

Write to James T. Areddy at James.Areddy@wsj.com

(END) Dow Jones Newswires

June 22, 2025 23:00 ET (03:00 GMT)

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