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Timeline: China's crackdown on private enterprise (2021)
02:49 - Source: CNNBusiness
Hong Kong CNN Business  — 

Alibaba shares fell after US regulators added the stock to a growing list of Chinese firms that might be kicked off Wall Street if US auditors can’t inspect their financial statements.

Alibaba (BABA) slid as much as 6% in Hong Kong on Monday morning, but then pared losses to 3.8% in the afternoon.

On Friday, Alibaba’s US-listed shares plunged 11% after the Securities and Exchange Commission put the company on its watchlist.

Alibaba Group Holdings Ltd. signage is displayed outside the company's offices on July 14, 2022 in Beijing, China.

Investors have been concerned about the tech giant for years now. In late 2020, Alibaba was caught up in a sweeping crackdown in China on the country’s booming technology sector. The stock has fallen nearly 70% from its all-time high.

The crackdown, coupled with a weakening economy, has slowed the revenue growth for many tech companies and wiped out billions of dollars from Chinese companies’ market cap.

The SEC has the power to kick companies off Wall Street if they fail to allow US watchdogs to inspect their financial audits for three straight years.

China has for years rejected US audits of its firms, citing national security concerns. It requires companies that are traded overseas to hold their audit papers in mainland China, where they cannot be examined by foreign agencies.

So far, the SEC has added more than 150 companies to its watch list, including Didi, (JD), Baidu (BIDU), and Yum China Holdings (YUMC).

On Monday, Alibaba said it would monitor market developments and “strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”

Last week, the company announced it would seek a primary listing on the Hong Kong stock exchange, a move seen by many analysts as preparing for a potential loss of direct access to US capital market.

Currently, Alibaba has a secondary listing on the Hong Kong stock exchange.

“A primary listing status in Hong Kong gives Chinese ADRs (American Depository Shares) an optionality to diversify their listing risk and retain access to the public equity market” if they are forced to leave the United States, said Goldman Sachs analysts in a report last week.

Alibaba’s smooth transition of listing status could also “set the path” for many more Chinese ADRs to pursue a similar switch, Citi analysts said separately.

— CNN Business’ Julia Hor