Chinese search giant and cloud computing firm AI Baidu has landed on the U.S. Securities and Exchange Commission’s tentative list of companies it may delist due to opaque disclosures.
The name of the law that allows such listings is the Foreign Holding Company Liability Act (HFCAA). Certain corporations that issue securities in the United States are required by law to allow local auditors to understand how much of their stock is owned by governments, whether governments exercise control over the company, and whether any officials or regulators are tied to the Party. Chinese communist.
Baidu filed its annual report a few days ago, and in a statement today, it suggested that the filing had somehow earned it a spot on the SEC list.
The company, which dominates China’s search market and has built an AI cloud as a well-regarded service, said it “will continue to comply with applicable laws and regulations in China and the United States, and will endeavor to maintain its listing status on Nasdaq and HKEx.”
How it will do this is not explained, which makes compliance tricky – Beijing insists that party representatives be present in top corporate positions. While the SEC only delists companies after three years of non-compliance, Baidu has some quick explanations.
The same goes for Chinese company iQIYI, a video streaming company also listed on NASDAQ and, since Wednesday, on the SEC’s HFCAA list.
Baidu shares fell 8% on the news and iQIYI fell nearly 10%.
The companies’ troubles come just a week after Chinese social media company Weibo also earned a spot on the HFCAA list.
Chinese companies continue to find problems in the United States. Carriers China Telecom and China Mobile were named national security threats last week, and Pacific Networks was recently ordered out of the country. Rare good news has seen network kit maker ZTE excuse some sanctions – but the US still views its kit as so risky it is paying local telecom operators to replace it with other products.
Baidu and iQIYI do very little business in the United States. Any delisting would therefore have the effect of denying them access to an important source of capital. It would hurt, but it could be a wound that Beijing will ask them to bear, as in recent months the Chinese government has balked at allowing tech companies to register overseas, fearing Chinese citizens’ data could be compromised. compromised.
The United States, for its part, is using the HFCAA to raise the regulatory bar for Chinese companies seeking to list in the United States, to deny Communist Party-controlled companies access to American capital. ®