If you hold U.S.-listed Chinese stocks like Alibaba Group Holding Ltd. (NASDAQ:BABA), JD.com Inc. (NASDAQ:JD) or PDD Holdings Inc. (NASDAQ:PDD), you may soon face serious liquidity risks, as delisting threats tied to geopolitical and regulatory frictions between Washington and Beijing mount with fresh urgency.

In a note shared Thursday, Goldman Sachs analyst Kinger Lau, CFA, said delisting fears for Chinese American Depositary Receipts (ADRs) are rising again, driven by escalating trade tensions and new policy guidance from U.S. officials, including President Donald Trump‘s America First Investment Policy and Treasury Secretary Scott Bessent's statement that "everything is on the table" in the response to China's retaliatory tariffs.

According to Goldman Sachs’ ADR Delisting Barometer, there is currently a 66% probability of delisting risk embedded in Chinese ADRs. A full pricing in of delisting risk could lead to a 9% drop in ADR valuations from current levels.

“U.S. listings by Chinese companies is widely regarded as an embodiment of financial market relations and a leverage for the potential negotiation between the two nations,” Lau wrote.

How High Are The Stakes?

“We estimate that U.S. institutional investors currently own around U.S.$830 billion of Chinese stocks across A shares, H shares and ADRs,” Goldman Sachs stated. Of this, approximately $250 billion is tied up in ADRs specifically.

At the same time, Chinese investors could be forced to offload up to $1.7 trillion in U.S. financial assets, including approximately $370 billion in equities and $1.3 trillion in bonds.

This extreme scenario — which alludes to a full investment ban — would represent the largest forced unwind of cross-border holdings in modern financial history.

Who Gets Hit The Hardest?

According to Goldman's analysis, 5% of Alibaba's and 3% of PDD's market cap is owned by U.S. institutions that currently don't own other Hong Kong-listed stocks such as Tencent or Meituan. That means they may not have operational flexibility to pivot to Hong Kong in the event of delisting.

Roughly 20% of U.S. institutional holdings in top ADRs — equivalent to 7% of the total market cap — may face similar constraints, meaning they may be forced sellers.

For Alibaba, there are 1,275 institutional holders globally, and institutional investors collectively own 50% of the company’s outstanding shares. Out of that, 26% of Alibaba's total shares are held by U.S.-based institutions, with 176 U.S. institutional investors holding positions larger than 0.005% of the company's total shares.

For PDD, the figures are more concentrated: it has 1,006 institutional holders, with institutions holding 31% of the stock overall. 16% of the total shares are held by U.S. institutional investors, and there are 107 U.S.-based institutional holders with significant stakes (above 0.005% ownership).

In short, the data suggests Alibaba has both broader and deeper institutional engagement, especially from U.S. investors, compared to PDD. This means that, in the event of a U.S. delisting, Alibaba could see a greater volume of forced selling from U.S. institutional investors due to the larger size and scale of U.S. holdings.

Are ETFs And Derivatives at Risk?

Yes. Passive funds and ETF products are particularly exposed. The KraneShares CSI China Internet ETF (NYSE:KWEB) has 33% of its assets in ADRs, half of which do not have Hong Kong listings, making it vulnerable in a forced delisting scenario.

Other funds, like the iShares MSCI China ETF (NYSE:MCHI), have already shifted weightings from ADRs to Hong Kong shares, thanks to changes in primary ticker designations by index providers like MSCI.

In derivatives markets, any forced delisting of ADRs could trigger early termination events under ISDA contracts, potentially unwinding outstanding options and swaps linked to these securities.

What Happens In A Delisting Event?

If a delisting takes place, investors may have a few paths forward depending on how the company is structured. For firms with dual listings, investors can convert their ADRs into Hong Kong-listed shares through the depositary bank.

This process typically takes about two business days and may involve fees and applicable taxes. In some cases, investors might be able to sell their shares on over-the-counter (OTC) markets, although this route is blocked for companies delisted under the Holding Foreign Companies Accountable Act (HFCAA) or sanctioned by the Office of Foreign Assets Control (OFAC).

If no action is taken by the investor, the ADR program will eventually be terminated and the depositary will sell the underlying shares, distributing the net proceeds in cash after deducting fees.

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