Threat to China firms on US exchanges grows with bill’s progress

While it applies to companies from any country, the bill targets Chinese firms that allegedly flout US audit rules. China says the proposed legislation is discriminatory.

Chinese e-commerce giant Alibaba, which is listed on the New York Stock Exchange, recently also launched its shares in Hong Kong as pressure on Chinese firms in the US mounted [File: Aly Song/Reuters]
Chinese e-commerce giant Alibaba, which is listed on the New York Stock Exchange, recently also launched its shares in Hong Kong as pressure on Chinese firms in the US mounted [File: Aly Song/Reuters]

The United States House of Representatives passed legislation to kick Chinese companies off US stock exchanges if they do not fully comply with the country’s auditing rules, giving President Donald Trump one more tool to threaten Beijing with before leaving office.

The measure passed the House by unanimous voice vote, after passing the Senate unanimously in May, sending it to Trump, who the White House said is expected to sign it into law.

“The Holding Foreign Companies Accountable Act” bars securities of foreign companies from being listed on any US exchange if they have failed to comply with the US Public Accounting Oversight Board’s audits for three years in a row.

While it applies to companies from any country, the legislation’s sponsors intended it to hit Chinese companies such as Alibaba, tech firm Pinduoduo and oil giant PetroChina that are listed in the US.

Chinese online group discounter Pinduoduo debuted on the Nasdaq exchange in New York in 2018 [File: Mike Segar/Reuters]
In addition to requiring companies to allow US inspectors to review their financial audits, the measure – introduced by John Kennedy, a Louisiana Republican and Senator Chris Van Hollen, a Maryland Democrat – requires firms to disclose whether they are under government control.

Measures taking a harder line against Chinese business and trade practices generally pass Congress with large margins. Both Democrats and Trump’s fellow Republicans echo the president’s hard line against Beijing, which became fiercer this year as Trump blamed China for the coronavirus ravaging the US.

Van Hollen said in a statement that US investors “have been cheated out of their money after investing in seemingly legitimate Chinese companies that are not held to the same standards as other publicly listed companies”.

Kennedy said China was using US exchanges to “exploit” Americans. “The House joined the Senate in rejecting a toxic status quo,” he said in a statement.

The American Securities Association praised passage of the bill saying it was necessary to protect Americans from “fraudulent companies controlled by the Chinese Communist Party.”

‘Non-discriminatory environment’

The Chinese embassy in Washington, DC, did not immediately respond to a request for comment. Chinese foreign ministry spokeswoman Hua Chunying said before the vote that it was a discriminatory policy that politically oppresses Chinese firms.

“Instead of setting up layers of barriers, we hope the US can provide a fair and non-discriminatory environment for foreign firms to invest and operate in the US,” Hua told a news conference.

A spokesman for Alibaba pointed to a comment on the bill from May, when it was passed by the Senate. Chief Financial Officer Maggie Wu told investors the firm would “endeavour to comply with any legislation whose aim is to protect and bring transparency to investors who buy securities on US stock exchanges”.

Shares of Chinese oil giant PetroChina were listed on the New York Stock Exchange in 2000 [File: Anthony Kwan/Bloomberg]
Chinese authorities have long been reluctant to let overseas regulators inspect local accounting firms, citing national security concerns.

Officials at China’s securities regulator indicated earlier this year they were willing to allow inspections of audit documents in some circumstances, but past agreements aimed at solving the dispute have failed to work in practice.

Shaun Wu, a Hong Kong-based partner at law firm Paul Hastings, said increased enforcement against Chinese companies was likely even though Democrat Joe Biden will become president in January.

He said if the bill becomes law, “all Chinese companies listed in the US will face enhanced scrutiny by the US authorities and inevitably consider all available options”.

This could include listing their shares in Hong Kong or elsewhere, he said. Several US-listed Chinese firms, including Alibaba and KFC China operator Yum China, have recently carried out secondary listings in Hong Kong.

Source : News Agencies

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