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WASHINGTON: The US House of Representatives passed legislation on Wednesday (December 2) that could prevent Chinese companies from listing their shares on US exchanges unless they meet US auditing standards. USA
The measure passed unanimously, after being approved by the Senate earlier this year, and sent to the White House, which said President Donald Trump is expected to sign it into law.
The Foreign Company Liability Act prohibits the securities of foreign companies from being listed on any US exchange if they have not met audits by the US Public Accounting Oversight Board for three years in a row.
While it applies to companies in any country, the legislation targets Chinese companies such as Alibaba, the Pinduoduo technology company and the oil giant PetroChina.
Measures that take a tougher line on Chinese business and business practices are generally approved by Congress with wide margins, as Trump’s Democrats and Republicans alike echo the president’s hard line against Beijing.
Democratic Senator Chris Van Hollen, who co-authored the bill with Republican Senator John Kennedy, said in a statement that American investors “have been scammed out of their money after investing in apparently legitimate Chinese companies that are not subject to the same standards as other listed companies “.
Kennedy said that China was using American exchanges to “exploit” Americans. “The House joined the Senate in rejecting a toxic status quo,” he said in a statement.
The law would also require public companies to disclose whether they are owned or controlled by a foreign government.
Increased scrutiny could also deter other Chinese companies from listing in the United States, industry participants say. These listings hit a six-year high this year.
INTERNATIONAL DISAGREEMENTS
Chinese Foreign Ministry spokeswoman Hua Chunying said before the vote that it was a discriminatory policy that politically oppresses Chinese companies.
“Rather than laying down layers of barriers, we hope the United States can provide a fair and nondiscriminatory environment for foreign companies to invest and operate in the United States,” Hua said at a press conference.
Chinese authorities have long been reluctant to allow foreign regulators to inspect local accounting firms, citing national security concerns.
Officials at China’s securities regulator indicated earlier this year that they were willing to allow inspections of audit documents in some circumstances, but previous agreements aimed at resolving the dispute have not worked in practice.
Shaun Wu, a partner at Hong Kong-based law firm Paul Hastings, said enforcement of the law against Chinese companies is likely to increase even though Democrat Joe Biden will become president in January.
He said that if the bill becomes law, “all Chinese companies listed in the United States will face increased scrutiny from the US authorities and will inevitably consider all available options.”
This could include listing in Hong Kong or elsewhere, he said. Several US-listed Chinese companies, including Alibaba and KFC China operator Yum China, have recently made secondary listings in Hong Kong.
