U.S. Senate passes bill that could delist Chinese companies from U.S. exchanges
May 26, 2020 Category China News Round-up, Weekly
The U.S. Senate passed legislation that could disqualify many Chinese companies from listing shares on U.S. stock exchanges. The legislation, which was supported by lawmakers of both parties and was passed without objection, requires companies seeking access to U.S. stock markets to establish that “they are not owned or controlled by a foreign government”. The bill also asks foreign companies to submit audits for inspection by the Public Company Accounting Oversight Board, the non-profit body that oversees audits of all U.S. companies in public markets. Failure to provide the information for three consecutive years would lead to the delisting of a company’s shares. The bill can be applied to any foreign company seeking to raise capital in the U.S., but lawmakers, including Senator John Kennedy, a Louisiana Republican who is one of the bill’s sponsors, have said that the legislation was aimed at China and intended “to stop them from cheating” on U.S. exchanges.
The bill, first introduced in March 2019, would still need to pass the House of Representatives before it could be signed into law by President Donald Trump. The passage of the bill comes as tensions increase between the U.S. and China, first from their trade war and now amid a pandemic that has claimed more than 100,000 American lives. The American Securities Association, a trade group representing small and regional financial services firms, supported the legislation, saying that “for far too long, fraudulent Chinese companies have gotten a free pass to access U.S. markets and exploit American investors”.
However, some are urging caution in moving to hold Chinese companies to the same reporting standards as others. Asking Chinese companies listed in the U.S. to provide the same operational transparency as other firms is “reasonable” – but would put them in conflict with state secrets rules enforced by the Chinese government, said Anna Ashton, Senior Director of government relations at the U.S.-China Business Council. “Chinese companies, in order to comply with this rule, at least according to the Chinese government, would have to break state secrets laws, and so this looks like a way to try to encourage the Chinese government to change their laws,” Ashton said, as reported by the South China Morning Post.
There are 165 Chinese companies listed on U.S. stock exchanges.
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