It may seem like an ongoing question: to buy stocks from China or not? The No. 1 worry on your list of worries might be the going-down-the-tubes China-U.S. relationship, and Chinese firms risk delisting by the Securities and Exchange Commission (SEC). Should you risk investing in them anyway?

Certain Chinese companies risk delisting from U.S. stock exchanges due to non-compliance with Washington's disclosure requirements. Put simply, this means a company is removed from a stock exchange because the exchange forces the company to delist. Should you "do business" with a Communist nation that has a government that can demarcate as it sees fit?

Let's take a look at several stocks on the chopping block and what you might want to do about them.

Risks of Investing in Chinese Stocks

Delisting a company means that it doesn't trade on a major exchange but you don't get stripped of your ownership of the stock. You still own the shares, but of course, the natural result is that the company's share value plummets.

There are some other inherent risks in investing in Chinese companies, including regulations that have affected performance, government espionage and frauds, and scandals:

• Regulations: The Chinese government has put a lot of restrictions and regulatory scrutiny on certain tech companies as a way to reassert the role of state power toward a more state-dominated economy after China had opened up its markets. The state has tried cutting certain big Chinese companies down to size through regulation. However, it's worth mentioning that it has only begun clamping down on companies that haven't met the state's strategic goals. However, the government may have realized the errors of its ways and has shown signs of changes, possibly hinting that it has tried to tame tech platforms too much. Experts are divided on what that might mean for tech companies.
• Global espionage: China companies have been on the chopping block for using cyber intrusions as well as physical theft to steal innovation from U.S. companies. The FBI has hundreds of ongoing investigations involving China’s attempted theft of U.S.-based technology.
• Fraud and scandals: U.S.-listed Chinese firms have been known to forge documents and make fraudulent financial reports and often exaggerate their performance through balance sheets. Take the example of Luckin Coffee. Luckin was delisted from the Nasdaq stock exchange in June 2020 after falsely inflating its sales by over $300 million. The company agreed to pay a $180 million penalty to settle the accounting fraud charges with the SEC.

However, these flaws aside, it's easy to see how tantalizing China is for ambitious investors. Market capitalization of Chinese stock listings doubles that of the Eurozone. Despite the historical, political and economic challenges, China still holds a major sway over the world's market growth potential and offers infrastructure and a manufacturing base like no other.

Possible Delistings 

Delisted stocks often continue to trade over-the-counter. However, you may face higher transaction costs and wider bid-ask spreads, as well as have to deal with the plunge in investor confidence.

JD.com Inc. (NASDAQ: JD)

JD.com, Inc. offers supply chain-based technologies and services in China, which includes:

• Computers
• Communication and consumer electronics products
• Home appliances
• General merchandise products, including food, beverage and fresh produce
• Baby and maternity products
• Furniture and household goods
• Cosmetics and other personal care items
• Pharmaceuticals
• Health care products
• Books
• Automobile accessories
• Apparel and footwear

It also provides online marketplace services for third-party merchants as well as marketing services and omni-channel solutions to customers and offline retailers. The company also has logistics facilities and other real estate properties and provides asset management services for logistics property investors. 

Here's a reason you may want to keep it: JD.com said it will do what it can to try to keep its U.S. listing by continuing to comply with applicable laws and regulations in both China and the United States and keep its status on Nasdaq and the Hong Kong Stock Exchange. However, these efforts might not be enough and you might want to opt for more of a guarantee. 

Pinduoduo (NASDAQ: PDD)

The e-commerce platform operator Pinduoduo Inc. (PDD) has had slumping shares over the past year due to regulatory crackdowns, though it has shown a continual rise in the stock market recently. 

Pinduoduo Inc. operates an e-commerce platform in China and offers the following products:

• Apparel
• Shoes
• Bags
• Childcare products
• Food and beverages
• Fresh produce
• Electronic appliances
• Furniture
• Household goods
• Cosmetics and other personal care items
• Sports and fitness items
• Auto accessories

Analysts expect Pinduoduo's revenue and net income to continue to rise and have demonstrated that it's reasonably valued. Even so, that may not be enough to sway nervous investors who see Pinduoduo on the to-be-delisted list for U.S. stocks.

Bilibili Inc. (NASDAQ: BILI)

Bilibili Inc. offers online entertainment services, including the following:

• Video services
• Mobile games
• Comic and audio content
• Professional user-generated videos
• Live broadcasting

Bilibili generates a lot of revenue from its value-added services (VAS), including sales of virtual gifts and subscriptions for live streamers, as well as ad sales and its
"e-commerce and others" segment.

Total net revenue in Q1 2022 reached $797.3 million, a 30% increase from 2021. Average monthly active users reached 293.6 million and mobile MAUs reached 276.4 million, a respective increase of 31% and 33% from 2021. Average daily active users (DAUs) reached 79.4 million, a 32% increase from 2021. Finally, the average monthly paying users (MPUs) reached 27.2 million, a 33% increase from 2021.

Should You Dump Due to Delisting?

The SEC added more than 80 Chinese companies to a delisting watchlist, including JD.com, Bilibili and Pinduoduo. Therefore, dumping may be your best bet.

Here's the bottom line: If you're holding onto the hope that a delisted stock might resurrect itself, remember that it's rare for a delisted stock to come back on a major exchange. Solving all financial issues and at the same time, avoiding bankruptcy while refiling all the necessary financial documents doesn't usually happen.