US Edges Closer To Pushing Chinese Companies Off Its Exchanges

Screeenshot of Senate bill S.945

ATTEMPTS TO EXCLUDE Chinese companies from US capital markets have advanced with the US House of Representatives approving a bill on December 2 that would ban foreign companies (for which read Chinese) trading on US exchanges if the US Public Company Accounting Oversight Board is prevented from reviewing a company’s financial audits for three consecutive years.

Existing firms that fail to meet the requirement would have to delist. The bill also requires a company listed on a US exchange to declare whether a foreign government controls it, and whether any of its directors is, specifically, an official of the Chinese Communist Party.

The US Senate passed the legislation in May. US President Donald Trump will undoubtedly sign it into law before he leaves office on January 20.

More than 50 foreign jurisdictions permit such reviews, but for more than a decade, China has refused to allow them, claiming strict confidentiality laws, but in effect because Chinese law prevents firms from sharing audit papers with foreign regulators on national security grounds. Regardless, more than 150 Chinese companies, with a combined value of $1.2 trillion, trade on US exchanges, including such well-known names as Alibaba and JD.com.

The business has been too lucrative for US exchanges not to turn a blind eye to the auditing review requirement. Trump, however, has become increasingly determined to cut off Chinese firms access to US capital markets, believing it supports China’s push for technological self-reliance and modernisation of the People’s Liberation Army.

Beijing’s response will turn on how it balances the need to ensure that Chinese firms have adequate access to international capital markets with its desire to develop its own in Shanghai, Shenzhen and Hong Kong.

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Filed under China-U.S., Markets

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