Chinese companies face US stock exchange delisting

Chinese companies face US stock exchange delisting

US lawmakers are ramping up pressure on Beijing’s oversight regime

Congress has passed legislation that could result in Chinese companies being delisted from US stock exchanges if they do not comply with accounting rules.

The House of Representatives approved the bill in early December after it was passed by the Senate unanimously in May.

President Trump is now expected to sign it into law, potentially hitting US-listed companies such as Alibaba and Chinese Telecom. The move could force several Chinese companies off US stock exchanges and put further strain on relations between Washington and Beijing.

If the bill becomes law, foreign companies registered with the Securities and Exchange Commission (SEC) will have to meet Public Company Accounting Oversight Board standards.

Companies listed on US exchanges would also have to prove that they are not controlled by a foreign government. Those failing to comply with inspection requirements for three years in a row would be removed from the New York Stock Exchange or Nasdaq.

In August, US Treasury and the SEC officials recommended a ban on Chinese companies being listed on American exchanges unless they complied with US accounting standards. Currently, Chinese companies that trade overseas are required to hold their audit papers in mainland China, where they cannot be examined by foreign regulators.

Nearly 200 Chinese companies are listed on US exchanges with a combined market capitalisation of around $2.2trn. Earlier this year, Chinese coffee chain Luckin was delisted from the Nasdaq after the company fabricated $300m in sales.

Alongside this, there has been growing pressure from Congress and the Trump administration to crack down on Chinese companies backed by US investors that do not comply with US rules. Also, tensions between the US and China have ramped up this year with clashes over who was responsible for the coronavirus and democracy demonstrations in Hong Kong.

Additionally, the Trump administration has argued that Chinese companies TikTok and Huawei both pose a national security threat.

Incoming President Joe Biden is expected to take a less confrontational stance on China compared to the Trump administration, however many do not foresee a significant relaxing of the current approach.

Last Updated: 11 December 2020
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