The single-most important goal for every Chinese company that decided to become publicly traded in the U.S. was to obtain a listing on a senior exchange, NASDAQ or NYSE / NYSE Amex. The reason that many companies chose a reverse merger as their method of going public was that it was much faster and significantly cheaper than a traditional IPO. And many of those reverse merger companies succeeded in getting their stock listed on a senior exchange within a few years.

This listing comes with a number of benefits. First of all it is much cheaper to raise capital when the stock is no longer just quoted on the bulletin boards. And raising capital is a primary reason for going public also for Chinese companies. Secondly this listing creates a liquid market outside of the PRC for Chinese shareholders, and in China money, personal wealth, and with it status is of prime importance, not comparable with Europe or the U.S.

That leads to the third, and probably most important reason for going public in the U.S.: recognition and prestige for the company and its officials. Being a U.S. public company with a NASDAQ or NYSE listing leads to prestige with both customers and suppliers, but also local banks and government. The good will of especially banks and local government officials is extremely important for a small Chinese company. In a country where success in business is largely based on networking and guanxi, status and prestige are invaluable assets for a young company.

But it also means that a delisting notice from NASDAQ or NYSE comes with great embarrassment for the company. In most cases not only the stock price will collapse, but the repercussions for the company's business in China could be severe if it loses that good will from banks and influential officials in the local government administrations. A Chinese company with a delisting notice will always pull all strings possible to maintain their senior exchange listing, not for the best of its foreign shareholders but for their very own survival.

There is no such thing as a "voluntary delisting" from a Chinese company. If you read such a phrase, stay away from the stock. A company that had its stock delisted without much of a fight is either a fraud or it has given up on its public status, in both cases you don't want to touch the stock.

We have seen more than 50 Chinese delistings over the past two years, and with very few exceptions all those companies were frauds or they have now stopped filing reports with the SEC for other reasons. Only the handful of companies that stayed current in filing its Form 10Qs and 10Ks at all times since the delisting are worth a second look.