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US Senate passes bill that puts some Chinese listings at risk

Business Desk | Published: 21:26, May 21,2020

 
 

The US Senate passed a bill on Wednesday that could compel some Chinese companies to de-list from US exchanges unless they complied with American accounting regulations, reports Reuters.

The legislation, which needs also to be passed by the House of Representatives, calls for a company to be barred from listing securities on US exchanges if it has not complied with the US accounting board’s audits for three consecutive years.

It comes as US-China tensions increase over the virus pandemic and after the Luckin Coffee accounting scandal.

It would also require listed companies to disclose whether they are owned or controlled by a foreign government.

The bill applies to all foreign companies, but is targeted at China, and follows intense criticism of Beijing by US president Trump and other US politicians, reports BBC.

Trump and officials in his administration argue that China mishandled the coronavirus outbreak in its early stages.

The outbreak has now grown to become a pandemic that has killed almost 3,30,000 people worldwide and crippled the global economy.

The Public Company Accounting Oversight Board, which audits the accounts of public companies, is prohibited from inspecting the accounts of companies registered in China or Hong Kong, according to one of the bill’s sponsors, John Kennedy, a Republican senator from Louisiana.

Kennedy, who introduced the bill in late March along with Democrat senator Chris Van Hollen of Maryland, said to Reuters that the Securities and Exchange Commission protected American investors from being ‘swindled by American companies’, but Chinese companies were not as well scrutinised.

Van Hollen also told Reuters that the economic effects of the coronavirus pandemic made protecting ‘main street investors’ more important.

‘For too long, Chinese companies have disregarded US reporting standards, misleading our investors,’ he added. 

While the bill passed in the Senate by unanimous consent, it is unclear when, or if, it will be taken up by the Democratic-controlled House of Representatives.

An aide familiar with the legislation said that a companion version of the Senate bill had not yet been introduced in the House.

After reaching a brief detente in their trade war late last year, the US and China are once again clashing publicly on several fronts, including Washington’s national security concerns about Chinese telecoms company Huawei and Beijing’s handling of coronavirus.

On Wednesday, US secretary of state Mike Pompeo drew China’s ire by publicly congratulating the newly elected president of Taiwan, which China claims as its territory. It was the first time that a US secretary of state had publicly congratulated a Taiwanese president.

China’s ministry of foreign affairs expressed its ‘strong indignation and condemnation’ in a statement, vowing to take ‘necessary measures’ in response to the US’s ‘wrong moves’.

US-listed Chinese companies have already come under increasing scrutiny in recent weeks after Luckin Coffee revealed that an internal investigation found hundreds of millions of dollars of its sales last year were ‘fabricated’.

The company said that its own investigation had found that fabricated sales from the second quarter of last year to the fourth quarter amounted to about $310 million (£254 million, 2.2billion yuan). That equates to about 40 per cent of its estimated annual sales.

The Chinese coffee chain has since sacked its chief executive and chief operating officer, while six other employees who were alleged to have been involved in or known about the transactions have been suspended or put on leave.

The scandal-hit firm has said that it has been co-operating with regulators in the US and China, who have begun an investigation into the company.

Luckin’s Nasdaq listing had been one of China’s few successful US stock market debuts of 2019.

On Tuesday Luckin said the Nasdaq exchange had notified the company of plans to delist it due to concerns over the alleged fabricated sales and disclosure failures.

Its shares will trade on the exchange pending the outcome of an appeal, expected within 45 days.

The scandal-hit firm’s shares, which had been suspended since April 7, plunged by more than 35 per cent after they resumed trading on Wednesday.

On Wednesday, US-listed shares of Chinese ecommerce giant Alibaba, Internet streaming company iQiyi, search engine company Baidu and online retailer JD.com all fell.

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