select chinese stocks have declined sharply on thursday china watchers believe this is likely because the securities and exchange commission has identified five uslisted american depositary receipts of chinese companies yum china beigene zai lab acm research and hutchmed for failing to adhere to the holding foreign companies accountable act hfcaa adrs are securities that represent shares of nonus companies and they are traded on us exchanges the act which was passed in 2020 permits the sec to ban companies from trading and be delisted from us exchanges if american regulators are not able to review company audits for three consecutive years these are the first china adrs to be identified as failing to adhere to the hfcaa these five companies are on the list because they recently filed their annual reports with the sec all the chinese listed adrs will likely end up on the list because none of them will be able to comply with requests to have their audits reviewed said brendan ahern chief investment officer at kraneshares told me this is because chinese law prohibits the auditor to provide their review to us regulatory authorities he added ahern noted that the sec has not moved to delist any of these companies he said sec chair gary gensler has said the clock had started last year so the earliest a company could be delisted would be 2024 after three years had elapsed the disputes with china are causing uslisted chinese companies to increasingly become duallisted in hong kong in the last year alibaba jdcom baidu bilibili tripcom weibo and nio have taken that step the kraneshares csi china internet etf a basket of overseaslisted chinese internet companies has also shifted its focus a year ago kweb was 75 uslisted it is now only 34 with the rest in hong kong however even before the holding foreign companies accountable act chinese companies were becoming leery of us investors ahern told me these companies have come to be used as proxies for china and the trade war he told me they dont necessarily trade on the fundamentals