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China tech stocks set for worst week in a year on regulatory woes

Chinese technology stocks are on track for their worst week in a year as concerns over forced delistings from Wall Street and new difficulties for groups planning to sell shares in Hong Kong spur heavy selling by global investors.

The Hang Seng Tech index was down 5.6 per cent on Friday in afternoon trading, taking the tracker of the city’s largest Chinese tech stocks more than 11 per cent lower over the past five sessions and putting it on track for the worst week since February 2022.

The falls for groups, including Tencent and Alibaba, mark the return of regulatory overhang that dogged some of China’s biggest and most profitable companies last year.

Regulators and legislators in Washington are pushing for greater scrutiny of foreign listings in the US while Beijing has carried out an extended crackdown on offshore-listed tech companies it views as a potential threat to national security.

“It’s a rollercoaster at the moment” said Louis Tse, managing director of the brokerage Wealthy Securities in Hong Kong.

Tse said Chinese tech stocks in Hong Kong and New York faced “a harsh road ahead” as concerns over monetary tightening by the US Federal Reserve combined with fresh regulatory concerns to deliver a double blow to valuations.

The tumble for tech groups such as Alibaba, which fell as much as 8.4 per cent on Friday, came after the US Securities and Exchange Commission announced five New York-listed Chinese companies faced delisting in early 2024 if they failed to hand over audit documents backing their financial statements.

The targeting of tech company ACM Research, fast-food giant Yum China and biotechnology groups BeiGene, Zai Lab and HutchMed triggered a sell-off in Chinese stocks traded in the US, leaving the Nasdaq Golden Dragon China index 10 per cent lower at the close on Thursday.

Uncertainty over the viability of US listings has driven a surge in secondary listings by Chinese companies in Hong Kong in recent years, including Alibaba, Baidu and NetEase. Those listings have brought in billions for the companies and provided a back-up in case they are forced off Wall Street.

But many Chinese groups listed on US markets face substantial difficulty in meeting the more stringent requirements of Hong Kong Exchanges and Clearing, which runs the city’s market, forcing some to either alter or suspend their plans to list in the Asian financial hub.

This week electric carmaker Nio began trading its shares in Hong Kong but did so by way of introduction, meaning it did not raise any money from the listing. This was because it failed to meet the exchange’s requirements to carry out a share sale.

On Friday, Bloomberg reported that Chinese ride-sharing group Didi Global, whose US initial public offering last June triggered Beijing’s clampdown on offshore listings, was forced to suspend preparations to list in Hong Kong via introduction due to regulatory scrutiny.

Didi announced in December that it planned to delist from New York’s Nasdaq exchange. The company’s shares fell 10.6 per cent in New York on Thursday.

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