Alibaba, JD.com and PetroChina will likely stay on Wall Street, despite pressure from Trump to remove Chinese companies from the list

President Donald Trump has a bill on his desk that could kick several Chinese companies off U.S. stock exchanges and ignite an already strained relationship between Washington and Beijing.

The Holding Foreign Companies Accountable Act would require companies to relinquish their listing on Wall Street if they refused to open their books to US accounting regulators. It could also prevent them from raising funds from US investors.

Although the law technically applies to companies in any country, it primarily targets Chinese companies.

“US policy is to let China flout the rules that US companies play, and that’s dangerous,” Sen. John Neely Kennedy, R-La., Said in a statement.

Chinese companies operating in the United States are no strangers to accounting scandals.

Just this year, Luckin, a Chinese coffeehouse chain that touted itself as a rival to Starbucks, was delisted from the Nasdaq after the company reported $ 300 million in revenue.

If the law passes, it could affect companies like Alibaba, oil giant PetroChina, JD.com and more than 200 other names.

Chinese companies listed on the US stock exchanges have a combined market capitalization of around $ 2.2 trillion, so a massive write-off would mean large capital flows. Something that experts say could backfire on US investors.

“If the bill becomes law, I think these companies will leave our stock exchanges and they will leave at prices that will not improve the situation for American investors,” said Jesse Fried, professor of law at Harvard. Law. School, in an interview on CNBC’s “Street Signs Asia”.

And we’re not just talking about the big institutional names on Wall Street. It could also have a huge impact on retail investors, who directly own shares of Chinese companies or have retirement portfolios that include ETFs covering these companies.

Some say the Chinese authorities would not really care if the law is passed.

Let’s say Alibaba is taken off the list. It actually speeds up something Beijing is already trying to do: develop its own trade.

More large Chinese companies listed with them would be good news, and it wouldn’t be bad for those companies either.

Chinese markets are much more sophisticated today than they were 10 years ago, so the withdrawal of companies and their listing in China would not be as restrictive as it once was.

And in terms of logistics, many blue-chip Chinese companies already have secondary listings in Hong Kong, which would make the transition much easier.

A company like Alibaba leaving the United States is also appealing to Beijing, as it diminishes the role of American regulators.

“The trade of these companies in the United States gives rise to friction with the Chinese authorities, because the American authorities want to impose their rules on these companies,” Fried said.

Beijing does not allow audits of its companies that do business in the United States to be inspected by U.S. regulators, a major point of contention between the two countries.

Also at stake – keeping companies under control.

“Although I think the Chinese government is very proud of Alibaba and what it has accomplished, they are not interested in seeing these private companies become so powerful,” Fried continued. “That would be one way to reduce them to their size.”

But analysts say a radiation exodus is actually quite unlikely.

“There is potential for a negotiated solution even if the legislation is enacted, ”said Marc Iyeki, former head of Asia-Pacific listings on the New York Stock Exchange.

Companies have three years to comply, which is a long time.

“The three-year grace period indicates that Congress is ready to give Chinese companies and their listeners, not one, not two, but three chances to comply,” Iyeki said.

Iyeki said Chinese regulators have also indicated they are ready to sit down to come to a mutually acceptable solution, and there are signs the Securities and Exchange Commission is ready to negotiate.

“SEC appears to be moving forward on preparing a PWG-based co-audit solution [President’s Working Group] recommendations, so it looks like they’re also considering a possible resolution, ”said Iyeki

Ultimately, we are dealing with the world’s two largest economies, whose financial markets are increasingly intertwined.

Decoupling the two is complicated and not particularly beneficial for either country.