As one door closes, another door shuts. Hundreds of Chinese companies trading in the US face delisting in the next few years. Congress passed legislation to force groups to comply with US accounting rules this month. But a secondary listing in mainland China may not be the back-up CEOs had hoped for.

The Shanghai and Shenzhen stock exchanges are tightening regulations. Proposed revisions will make delisting of listed companies much easier. Businesses whose market values fall below a fixed threshold of about $46m for 20 trading days will be in the line of fire.

Delistings have been relatively rare in China. Just over 120 companies have quit Chinese bourses in the past decade, despite a slew of initial public offerings. As a result, there are more than 4,100 listed companies in China, similar to the number in the US, where delistings average upwards of 200 a year.

Some Chinese stocks have long track records of accounting and governance issues. Weeding those out will help investors in the long term. It is part of Beijing’s wider market reforms, which have included a crackdown on corrupt credit rating agencies and lenders.

Yet the process will be fraught with difficulties. Investment in China has surged this year, pushing the equity market value to more than $10tn. Funds from foreign investors have increased by two-thirds to record levels.

Foreign investment in the local equity market has historically held the risk of sudden market suspensions, leaving value trapped or wiped out. Trading of more than half of all 3,000 listed local stocks was suspended during a sell-off five years ago.

The risk of being blindsided will increase. The latest reforms include faster suspensions of suspect companies. They may not even be relisted before a final delisting decision is made, which would permit an exit at a rock-bottom price.

It is a fragile time for these well-intentioned reforms. A growing number of corporate defaults means more are likely to make the watch list for removal from the markets.

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