Wuxi Biologics Halted After U.S. Unverified List Sparks Rout

(Bloomberg) -- Wuxi Biologics Cayman Inc. shares were suspended in Hong Kong Tuesday after its inclusion to the U.S. government's unverified list sparked a record selloff and prompted fears of a fresh hit to Sino-American relations.

The Chinese biotech giant's stock sank as much as 32% in Hong Kong before the halt, dragging down health-care stocks and the broader equities benchmark. The CSI 300 Health Care Index dropped 1.3% to close at its lowest in nearly two years. The company has filed for trading to resume Wednesday.

While Wuxi Biologics said it's in compliance with all U.S. export control regulations, the Commerce Department stated in a Feb. 8 notice that it hasn't been able to verify how items will be used by the firm. Other Chinese additions to the list included Guangdong Guanghua Sci-Tech Co. and Zhuzhou CRRC Special Equipment Technology Co.

The list comes as trade tensions are once again on the rise, with American officials expressing frustration that China hasn't made progress on its commitments in recent months. Wuxi Biologics was also in the cross-hairs of traders in December when there was speculation the firm could face tougher U.S. sanctions.

“I think U.S. lists and sanction are just something Chinese firms will need to learn to live with in the future if they intend to do business with the U.S.,” said Wu Xian Feng, a fund manager at Shenzhen Longteng Assets Management Co.. “But as an investor, I only need to worry about each firm's competitive edge. If it's hard to seek a substitute for their goods or services, the impact can be mitigated.”

The Bureau of Industry and Security, a division of the U.S. Department of Commerce, added 33 entities in total to its unverified list. While firms on the list aren't barred from doing business in the U.S., they may need additional licenses to buy products from American entities.

Wuxi Biologics said the list has “no impact on our business or ongoing services to global partners,” according to a statement on its official Wechat account. It added that the unverified list is different from the “entity list” or so-called blacklist.

Changes to a range of U.S. lists on Chinese firms requiring special checks have tended to cause volatility in shares amid heightened trade tensions between the two countries. In 2019, the Commerce removed LED chipmaker Sanan Optoelectronics Co. along with seven other Chinese firms from the unverified list, triggering a jump in shares.

“I believe this would impact the sentiment for Wuxi Biologics and the talk could last a while,” said Mia He, a analyst for Bloomberg Intelligence. “We haven't identified how much materials are imported from U.S. in their production thus how much impact would have is difficult to gauge currently.”