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More Chinese stocks likely to follow after CNOOC's New York exit

PetroChina, Sinopec, Air China and ZTE also seen at risk from US sanctions

CNOOC, which listed on the New York Stock Exchange in 2001, will be ejected following a final day of trading on Monday.    © Reuters

HONG KONG -- The forced U.S. delisting of CNOOC, China's largest offshore oil producer, is likely to be followed by more exits as the new Biden administration holds to the tough line of the previous presidency.

CNOOC, which listed on the New York Stock Exchange in 2001, will be ejected following a final day of trading on Monday to comply with an executive order issued by then-President Donald Trump last November banning U.S. investment in designated companies found to have ties to the Chinese military.

Luokung Technology, a provider of map software and cloud services, faces removal from the Nasdaq Stock Market from March 15 while another four companies, including phone maker Xiaomi, which trade over the counter in New York have also been blacklisted.

Analysts see PetroChina and China Petroleum and Chemical Corp., known as Sinopec, also under threat though they are not part of the blacklists yet.

"Given that the Treasury Department and potentially the Defense Department are expected to identify additional companies subject to the executive order, including subsidiaries of previously identified companies, other Chinese companies listed on U.S. exchanges could be impacted down the road," said Nick Turner, a lawyer specializing in sanctions at Steptoe and Johnson in Hong Kong. He said the agencies could name more companies in the "coming weeks."

China Blue Chemical, majority owned by CNOOC, trades over the counter in the U.S. as does ZTE, in which blacklisted China Aerospace Science and Technology has an indirect 27% holding, and Air China, controlled by the sanctioned China National Aviation Holding. China Blue, Air China and ZTE have not commented on the issue so far.

CNOOC Chief Executive Xu Keqiang on Feb. 5 had said his company's blacklisting was the result of a "misunderstanding" and that he hoped for dialogue with Washington to resolve the issue. CNOOC shares have slid 6% in New York since the NYSE announced its intention on Feb. 26 to kick out the company, almost twice the decline seen in its Hong Kong shares over the period.

CNOOC joins China Mobile, China Unicom (Hong Kong) and China Telecom which were suspended from NYSE trading in January.

The trio have requested a review of the bourse's decision to delist their shares, though their stocks have since risen in Hong Kong.

They have been among the main beneficiaries of record inflows this year through an investment channel that allows mainland Chinese to buy stocks listed in the city. China Telecom has surged 33% while China Mobile has gained 29% and China Unicom 9%.

"It wouldn't be surprising to see more companies facing the same fate as CNOOC or China Mobile," said Hao Hong, head of research at BOCOM International in Hong Kong.

"Companies with no known links to the Chinese military have been named by the past administration," he said. "For now, Biden's focus is on domestic issues, not on the relationship with China."

As of October, there were 217 Chinese companies listed on U.S. exchanges with a total market capitalization of $2.2 trillion, according to the U.S.-China Economic and Security Review Commission.

While most of the companies blacklisted by the Trump administration were state-owned enterprises, the example of Xiaomi points up the risk even for private companies.

In response to a legal challenge by the Chinese company to its blacklisting, the Department of Defense said that Xiaomi had been singled out because of a state award given to Chief Executive Lei Jun for his services to the government and because of the company's plans to invest in areas such as 5G and artificial intelligence.

The stocks so far affected by delisting were not often traded in New York, but the sanctions have caused short-term disruptions as investors race to liquidate positions.

Xiaomi shares, which tripled last year, have lost a third of their value in Hong Kong since its blacklisting on Jan. 14.

Last Friday, FTSE Russell said it would drop Xiaomi from its indexes by the end of this week unless it receives further clarifications from Washington. S&P Dow Jones Indices has also said it will evict Xiaomi.

U.S. officials have not publicly explained the specifics of CNOOC's blacklisting, but the company and its unlisted parent have been at the center of territorial disputes in the South China Sea and East China Sea between Beijing and its neighbors regarding sovereign control over drilling rights.

Additional reporting by Kenji Kawase.

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