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Chinese concept stocks listed in the United States will face an extremely severe test.
On the evening of December 2, US Eastern Time, the US House of Representatives formally passed the “Foreign Business Liability Act.” This much watched bill is seen as targeting Chinese concept stocks listed in the United States. And released.
And behind these Chinese concept stocks, there are a lot of Chinese Internet technology companies.
It is worth mentioning that already in May of this year, the United States Senate approved the bill, which means that the bill will be delivered to the White House and will take effect after the President of the States United I sign it.
The rain is about to come and the wind is full of the building, and a lot of Chinese concept stocks fell after hearing the wind.
“Foreign Company Liability Law” for Chinese companies
From a certain perspective, the “Law of Liability of Foreign Companies” is directed at Chinese companies.
Leifeng.com learned that in late 2019, Republican Senator John Kennedy (John Kennedy) of Louisiana, USA, proposed a draft of the “Foreign Business Liability Act”; subsequently, after the Ruixing fraud incident, John Kennedy and Democratic Senator Van Hollen jointly proposed the bill.
In May 2020, the bill was approved by the United States Senate. At the time, when John F. Kennedy spoke in the Senate, he said, “I don’t want to fall into a new cold war … I think what we all want is for China to play by the rules.”
And Van Hollen also made no secret that the bill originated from “the intensification of tensions between the United States and China aroused political concern.”
In this regard, the White House economic adviser, Larry Kudlow, also said in an interview:
We must protect investors, and we must also protect national security … Because these companies have failed to maintain transparency in their reporting, many companies have already had scandals and caused many losses to investors.
Leifeng.com learned that there is a fundamental clause in the “Foreign Company Liability Act”: if a company cannot prove that it is not controlled by a foreign government, or if the State Public Company Accounting Supervisory Board States (PCAOB) cannot audit it for 3 consecutive years. Trading of the company’s securities on US stock exchanges will be prohibited.
In other words, this bill actually requires that Chinese companies listed in the United States be subject to three consecutive years of review by the PCAOB.
But in fact, according to the police cooperation memorandum signed between the China Securities Regulatory Commission and the Ministry of Finance and the US PCAOB on May 7, 2013, China and the US have a mechanism of cross-border police cooperation for accounting audits. For example, China assisted the PCAOB in 2017. Chinese accounting firms have carried out pilot inspections and, since 2019, have repeatedly proposed specific plans for joint inspections of accounting firms to the PCAOB.
In fact, if the PCAOB needs to obtain accounting documents from Chinese companies due to case investigations, it can request the China Securities Regulatory Commission and the Ministry of Finance to obtain the corresponding accounting documents without violating the provisions of the “Confidentiality Law ” from China. .
Therefore, the practice of requiring that Chinese companies listed in the United States be audited by the PCAOB for three consecutive years is actually too much.
It is worth mentioning that in August 2020, the US Treasury Department published the “Report on Protecting US Investors from Major Risks of Chinese Companies” on its official website, suggesting that Chinese companies should raise the listing threshold, strengthen information disclosure requirements, and strengthen Investment Risk Warning and requires publicly traded companies in the United States to comply with the relevant PCAOB requirements to conduct inspections by 1 January 2022.
There is even news that the US Securities and Exchange Commission (SEC) has suggested to Trump that all Chinese companies that have been listed in the US but do not meet statutory audit requirements from the US must be removed by January 2022.
The share prices of many Chinese tech companies have fallen, and China has also spoken out.
After the passage of the aforementioned bill, Chinese concept stock companies followed the news.
It is understood that at the close of US stocks on December 2, the popular Chinese concept stocks were mixed. For example, Baidu was up 2.45%, JD was down 1.15%, Pinduoduo was up 5.51%, Xiaopeng Motor was up 6.76% and Weilai was up 5.73%.
However, affected by the news of the passage of the aforementioned bill, some popular Chinese concept stocks fell after the market. Among them, Baidu fell 0.49%, JD.com and Pinduoduo fell more than 1%; the three new car manufacturing forces also rejected, Weilai fell 3.57%, Xiaopeng Motors fell 2.95% and Ideal Motors fell 1.64%.
Of course, relevant departments in our country have responded to this bill many times.
As early as May 2020, when the United States Senate passed the bill, the China Securities Regulatory Commission declared that, judging by the bill and the speeches of relevant individuals in the United States Congress, Some of the provisions of the bill are aimed directly at China, rather than relying on professional securities supervision. With that in mind, we strongly oppose this practice of politicizing securities supervision.
The Securities Regulatory Commission believes that the bill will harm the interests of both parties. It will not only prevent foreign companies from being listed in the United States, but it will also weaken global investors’ confidence in the US capital market and its international status.
Finally, the CSRC also asked:
Relevant parties in the United States are expected to maintain professionalism, catch up with China mid-way, and handle regulatory cooperation matters in accordance with the principles of commercialization and the rule of law. Promote China-US audit supervision cooperation with practical actions to promote early consensus between the two parties and jointly protect the legitimate rights and interests of investors.
In addition to the China Securities Regulatory Commission, China’s Ministry of Foreign Affairs also responded to the bill on December 2. In response, the United States adopted a discriminatory policy against Chinese companies, which is a political crackdown on Chinese companies; relevant parties are openly strengthening cross-border policies. Regulatory cooperation, strengthening dialogue and cooperation on issues such as the protection of the legitimate rights and interests of investors is the correct way to solve the problem.
However, judging from the current situation, after the US Senate and House of Representatives voted, the “Foreign Business Liability Act” is only one step away from becoming US law.
Simply put, it was signed by the US government, Trump, so what is Trump’s attitude?
As early as May this year, Trump said in an interview that the White House was observing how Chinese companies listed on US exchanges did not comply with US accounting standards, but also admitted that if Chinese companies are required to comply with the American accounting standards, could provoke Chinese companies turned to other international financial centers such as London and Hong Kong to list.
Considering Trump’s attitude toward China since he took office, there is not much of an obstacle to signing this bill.
It’s worth mentioning that, according to the British Financial Times, American investors’ assessments of the bill are divided, but the general feeling is that even if it becomes law, it will take several quarters for Chinese companies to face the threat of exclusion from the list. It can take several years to manifest itself, and not all businesses are threatened to the same extent.
summary
For many years, the US stock market has always been a popular choice for Chinese tech companies when they go public.
However, judging from the situation in the past two years, more and more Chinese tech companies tend to be listed in Hong Kong, such as Xiaomi and Meituan; and companies like JD, Alibaba, and NetEase that have already been listed in the United States also choose to be listed in Hong Kong. Going public, of course, there are also some Chinese tech companies that choose to go public on the American stock market, like the three new automakers.
But overall, in 2020, when China-US relations take a hit, the attitude of the US capital market towards Chinese tech companies is not overly friendly.
It is worth mentioning that Song Yang, Managing Director of China Renaissance Capital, previously stated that a maximum of 50 to 60 Chinese concept shares are expected to be listed in Hong Kong in the next 3-5 years; perhaps, this prediction is not unfounded.
Reference link for this article: (Lei Feng Net Lei Feng Net Lei Feng Net(Public account: Leifeng.com)）
