US Congress approves law that threatens Chinese listings

The US House of Representatives has approved a law that could force Chinese companies off US exchanges if they do not agree to a review of their audited accounts

US Congress passes law that threatens Chinese listings
Departing SEC chairman Jay Clayton supports tighter audit rules but noted that a new law threatening Chinese listings in the US gives time for adjustment. Image: Reuters

(ATF) The US House of Representatives on Wednesday December 2 approved legislation that could force Chinese companies such as Alibaba and Baidu to delist from US exchanges if an accounting regulator is not allowed to review their financial audits.

The legislation passed the Senate in May and won bipartisan support in the lower chamber of Congress on Wednesday. The bill will now go to President Trump, who is expected to sign it into law.

The bill requires firms to disclose whether they are under government control and have their accounts examined.

China’s refusal to let the US Public Company Accounting Oversight Board (PCAOB) examine audits of firms whose shares trade in the US has led to a stalemate with the US over requirement for use of the agency, which was set up in the wake of Enron’s failure to prevent fraud.

More than 50 other foreign jurisdictions now permit PCAOB inspections.

Chinese firms that are listed in the US will not have to make any sudden moves after the “Holding Foreign Companies Accountable Act” becomes law.

The act would ban securities of foreign companies from listing on a US exchange only after they have failed to comply with PCAOB audits for three years in a row.

The act may nevertheless cause further evaluation of the relative appeal of listing in the US compared to other venues such as Hong Kong for Chinese companies.

Backing for the coming new US law has been seen from regulators such as the Securities and Exchange Commission (SEC), as well as politicians from both main parties.

But even outgoing SEC chairman Jay Clayton, who has been a strong supporter of greater scrutiny of audits by foreign companies that are listed in the US, noted on Wednesday that the bill allows time for investors to adjust their holdings - and by implication for China and its corporations to reach a compromise with the US.

Fang Xinghai, the vice chairman of the China Securities Regulatory Commission, last month also expressed hope that that the clash could be resolved with an incoming Biden administration.

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US-China Congress Chinese listings US stock markets PCAOB inspections Holding Foreign Companies Accountable Act SEC Bipartisan support Jay Clayton CSRC