Chinese companies like Alibaba, Baidu and Tencent could be kicked off stock exchanges in the United States or barred from listing there if they do not comply with a Bill passed by the US Senate on Wednesday.
The Holding Foreign Companies Accountable Act bans companies from listing on US exchanges if they fail to comply with audits by the Public Company Accounting Oversight Board for three years in a row.
It also requires companies to certify whether they are under the control of a foreign government.
Though the Bill applies to all foreign companies, it targets China’s unwillingness to allow American regulators to routinely inspect audits of firms registered in China and Hong Kong, a longstanding grievance of American investors that gained prominence as ties between the US and China worsened.
Senators behind the Bill say it is an effort to subject Chinese companies to the same oversight as US companies to protect American shareholders from fraud that could wipe out their investments.
“We don’t want to be unfair to Chinese companies. We’re not changing the rules. They’ve just been ignoring the rules,” said Republican Senator John Kennedy of Louisiana, who introduced the bipartisan Bill together with Democratic Senator Chris Van Hollen of Maryland.
Mr Kennedy said: “It says to all the companies out there in the world, including, but not limited to China: You want to list on an American exchange, you have to submit an audit, and the SEC (Securities and Exchange Commission) has the right to look at that audit, and audit the audit.
“If you ignore the SEC for three years, then you’ve got to take your business somewhere else.”
The Public Company Accounting Oversight Board, which oversees the audits of public companies, has been blocked from inspecting the financial reports of China-based companies by Chinese laws and restrictions.
SEC data from 2018 showed that there were 224 US-listed companies, representing more than US$1.8 trillion (S$2.55 trillion) in combined market capitalisation, whose audits could not be reviewed.
Around 95 per cent of them were based in mainland China or Hong Kong.
The passage of the Senate Bill comes days after Nasdaq moved to delist China’s Luckin Coffee, a rival to Starbucks, following its disclosure last month that its staff fabricated up to 2.2 billion yuan (S$440 million) in sales last year.
“Had this legislation already been signed into law, US investors in Luckin Coffee likely would have avoided billions of dollars in losses,” said Democratic lawmaker Brad Sherman of California, who introduced a companion version of the Bill in the House of Representatives.
CHINA’S DISINFORMATION CAMPAIGN
China is on a massive disinformation campaign because they are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!
Spokesman speaks stupidly on behalf of China, trying desperately to deflect the pain and carnage that their country spread throughout the world. Its disinformation and propaganda attack on the United States and Europe is a disgrace… It all comes from the top. They could have easily stopped the plague, but they didn’t!
U.S. PRESIDENT DONALD TRUMP, referring to a China spokesman he did not name.
The Bill, which must still be passed by the House and signed into law by US President Donald Trump, comes amid tightening scrutiny of Chinese companies in the US.
The White House last week directed the federal pension fund, which oversees billions of dollars of retirement savings, to stop plans to invest in Chinese companies over concerns that the firms were risky and could pose threats to national security.
The Bill is also part of a steady stream of legislation against China on issues ranging from trade to human rights in Tibet and Xinjiang, a bipartisan push from Congress that dovetails with the President’s recent belligerent statements on China.
On Wednesday, Mr Trump again slammed China over the Covid-19 pandemic, saying on Twitter: “It all comes from the top. They could have easily stopped the plague, but they didn’t!”
He said that a China spokesman – without specifying who – spoke “stupidly on behalf of China, trying desperately to deflect the pain and carnage that their country spread throughout the world”.
Mr Trump also accused China of embarking on a “massive disinformation campaign” because it preferred his Democratic rival Joe Biden to win the presidential election in November – charges that China has denied.
Mr Trump said on Twitter: “They are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!”
Washington and Beijing also further clashed over US Secretary of State Mike Pompeo’s public congratulating of Taiwanese President Tsai Ing-wen for her second term, the first time a US secretary of state had done so.
Separately, the US government notified Congress of a possible sale of advanced torpedoes to Taiwan worth around US$180 million.
The US State Department approved a possible sale to Taiwan of 18 MK-48 Mod 6 Advanced Technology Heavy Weight Torpedoes and related equipment, the US Defence Security Cooperation Agency said in a statement on Wednesday.