People's Republic of China-based companies listed on U.S. exchanges have been setting up secondary listings in Hong Kong, as it becomes more likely that they will need to undergo audits compliant with Public Company Accounting Oversight Board (PCAOB) regulations, according to the Wall Street Journal. Those that do not comply will face delisting.

This scenario is very close to coming to pass, as the House of Representatives passed a bill with the new requirements earlier this week; with the Senate already having cleared the bill a few months back, this means that all that is needed for the measure to become law is the president's signature. Considering that the president was pursuing a similar measure via the Securities and Exchange Commission (SEC), he is highly likely to sign it.

With this in mind, 10 Chinese companies so far, with a combined market capitalization of $1 trillion, have set up secondary listings in Hong Kong as a hedge against possible delisting, as have several smaller companies. Eleven other Chinese companies have chosen to leave public exchanges altogether and go private, with deals to do so totaling $16.7 billion, the highest amount since 2015.

PCAOB access to Chinese audits has long been a source of tension between the two countries. While the PCAOB and its Chinese counterpart tried for years to negotiate a joint inspection agreement similar to the ones established in many other countries, the talks ultimately collapsed in 2015. A major sticking point in negotiations was that a program of the type the PCAOB was proposing would have run afoul of China's strict laws on sharing information with foreign entities. The PCAOB, meanwhile, has expressed concern on numerous occasion about the accuracy of the numbers coming from Chinese audit firms on companies seeking to be listed on U.S. exchanges.