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Chinese firms on U.S. exchanges threatened by bill headed to Trump's desk

Stock MarketsDec 02, 2020 07:25PM ET
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2/2 © Reuters. FILE PHOTO: Chinese and U.S. flags flutter near The Bund in Shanghai 2/2

By Patricia Zengerle

WASHINGTON (Reuters) - The U.S. House of Representatives passed a law to kick Chinese companies off U.S. stock exchanges if they do not fully comply with the country's auditing rules, giving President Donald Trump one more tool to threaten Beijing with before leaving office.

The measure passed the House by unanimous voice vote, after passing the Senate unanimously in May, sending it to Trump, who the White House said is expected to sign it into law.

"The Holding Foreign Companies Accountable Act" bars securities of foreign companies from being listed on any U.S. exchange if they have failed to comply with the U.S. Public Accounting Oversight Board's audits for three years in a row.

While is applies to companies from any country, the legislation's sponsors intended it to target Chinese companies listed in the United States, such as Alibaba (NYSE:BABA), tech firm Pinduoduo (NASDAQ:PDD) Inc and oil giant PetroChina Co Ltd..

Measures taking a harder line on Chinese business and trade practices generally pass Congress with large margins. Both Democrats and Trump's fellow Republicans echo the president's hard line against Beijing, which became fiercer this year as Trump blamed China for the coronavirus ravaging the United States.

Democratic Senator Chris Van Hollen, who co-authored the bill with Republican Senator John Kennedy, said in a statement that American investors "have been cheated out of their money after investing in seemingly-legitimate Chinese companies that are not held to the same standards as other publicly listed companies."

Kennedy said China was using U.S. exchanges to "exploit" Americans. "The House joined the Senate in rejecting a toxic status quo," he said in a statement.

The act would also require public companies to disclose whether they are owned or controlled by a foreign government.

The American Securities Association praised passage of the bill saying it was necessary to protect Americans from "fradulent companies controlled by the Chinese Communist Party."

'NON-DISCRIMINATORY ENVIRONMENT'

The Chinese embassy in Washington did not immediately respond to a request for comment. Chinese foreign ministry spokeswoman Hua Chunying said before the vote that it was a discriminatory policy that politically oppresses Chinese firms.

"Instead of setting up layers of barriers, we hope the U.S. can provide a fair and non-discriminatory environment for foreign firms to invest and operate in the U.S.," Hua told a news conference.

A spokesman for Alibaba pointed to a comment on the bill from May, when it was passed by the Senate. Chief Financial Officer Maggie Wu told investors the firm would "endeavor to comply with any legislation whose aim is to protect and bring transparency to investors who buy securities on U.S. stock exchanges."

Chinese authorities have long been reluctant to let overseas regulators inspect local accounting firms, citing national security concerns.

Officials at China's securities regulator indicated earlier this year they were willing to allow inspections of audit documents in some circumstances, but past agreements aimed at solving the dispute have failed to work in practice.

Shaun Wu, a Hong Kong-based partner at law firm Paul Hastings, said increased enforcement against Chinese companies was likely even though Democrat Joe Biden will become president in January.

He said if the bill becomes law, "all Chinese companies listed in the U.S. will face enhanced scrutiny by the U.S. authorities and inevitably consider all available options."

This could include listing in Hong Kong or elsewhere, he said. Several U.S.-listed Chinese firms, including Alibaba and KFC China operator Yum China, have recently carried out secondary listings in Hong Kong.

Chinese firms on U.S. exchanges threatened by bill headed to Trump's desk
 

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Comments (6)
ishak ahmad
ishak ahmad Dec 02, 2020 9:21PM ET
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"to protect frm fraudulent" Uncle Crab teaching his niece CrabyChenny to walk straight.
Zach Lohman
Zach Lohman Dec 02, 2020 8:46PM ET
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Anything short of a complete ban and I will continue to invest in China, even if it’s on other exchanges or OTC. I’m not interested in leaving one of the biggest, fastest growing markets.
Daniel Hodel
Daniel Hodel Dec 02, 2020 8:37PM ET
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What is the ICBC North American headquarters located in Trump Tower NY going to tell him to do?
David David
David9 Dec 02, 2020 6:56PM ET
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Investors does not care if it meets US standards or not. Mostly the US accounting are crappy anyways. Investors will continue to pour money into China, that is where the growth is....
Zach Lohman
Zach Lohman Dec 02, 2020 6:56PM ET
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They have their own standards. I wish this actually had something to do with investing and not the US leadership’s worry about China becoming a co-super power. I doubt anything will stop that at this point. Better to work on an amicable relationship.
Roland Hara
Roland Hara Dec 02, 2020 6:56PM ET
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Zach Lohman are you serious? China has their own standards? Theyre a communist nation, they own everything including the earnings they report. Its a great thing for all investors that this bill passed. All this bill is doing, is making sure all publicly traded companies report their accounting practices under the same guidelines. Alibaba said they have no issues and support it. Why do you have a problem with it? As an investor you should be grateful.
Zach Lohman
Zach Lohman Dec 02, 2020 6:56PM ET
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Roland Hara Roland Hara The point is that the US leadership is scared of China becoming a co-super power. It has maybe 5% to do with protecting investors and the other 95% to do with that. There are plenty of countries with less freedoms than the US. There are plenty of countries with rights abuses. There are plenty of countries with different accounting standards (wasn’t a problem for years), there are plenty of countries with low paid workers taking US jobs so why go after China in particular? It’s an empire thing just like it was with Russia,
Roland Hara
Roland Hara Dec 02, 2020 6:56PM ET
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Zach Lohman please provide a list of publicly traded companies from other contries that are not abiding by US Securities Exchange regulations, as you’re claiming. The fact that you sit here and claiming this to be a conspiracy and not welcoming this policy is comical. Makes me think you’re not an investor at all. Again, if Alibaba is welcoming this policy, why arent you as an investor?
Testo Sterone
Testo Sterone Dec 02, 2020 6:37PM ET
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Read the bill people. 3 years to comply
Björn Weber
Björn Weber Dec 02, 2020 5:45PM ET
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Sold Nio today before the final bell
Yanna Lisitsina
Yanna Lisitsina Dec 02, 2020 5:45PM ET
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Better be safe then sorrh i cant believe how many people are risking it. Even if theres that 10% chance china doesnt agree its not worth your money
 
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