The U.S. Senate just passed a bill that boosts oversight of companies based in China, as well as other nations, that may result in their removal from American stock exchanges.
Introduced over a year ago by Senators John Kennedy (R-LA) and Chris Van Hollen, (D-MD), the approval comes at the perfect time, as the U.S. is looking for ways to distance itself from China in response to the fiasco the country made in their handling of the COVID-19 pandemic. China’s failure has infected almost 5 million people and killed over 324,000… and presented the U.S. with the highest rate of unemployment since the Great Depression.
The bill’s focus on Chinese stocks is due to concerns that Chinese firms listed on America’s exchanges are currently not subject to the same investor protection rules and accounting standards as U.S. companies. This means that small retail investors face a higher risk of fraud. This is not a new concern, but one that was raised way before the pandemic China started.
The bill, which passed Wednesday, says that if the Public Company Accounting Oversight Board, a nonprofit established by Congress after the WorldCom and Enron scandals of the early 2000’s, is denied access to a foreign stock issuer’s books for three years, the Securities and Exchange Commission will prohibit trading in the shares on U.S. exchanges.
The legislation indicates what a company needs to do to conduct business with us, and tells them “if you want to list on an American exchange, you have to submit an audit and the SEC has the right to look at that audit, and audit the audit,” Kennedy said on the Senate floor. “And if you refuse not once, not twice, but three times — if over a three-year period, each of those three years, the company says, ‘You cannot audit my audit,’ then they can no longer be listed.”
Officially known as the Holding Foreign Companies Accountable Act, the bill would still have to be approved by the Democrat-controlled House of Representatives, and signed by President Donald Trump to become law.
“After a decade of pounding the tables on the issue of China companies defrauding U.S. investors, we are encouraged to see this bill pass the Senate and we hope it becomes law,” Carson Block, founder of Muddy Waters Research, told FOX Business via email. “By listing in the U.S., these companies have ready access to U.S. retail investors’ money, and so long as China effectively remains a rogue country for U.S. securities regulation, its companies should not have access to our markets.”
Over the past decade, it should be noted that fraudulent listings of Chinese companies on U.S. stock markets have caused investors to lose billions of dollars. As of February 2019, there were around 156 Chinese companies listed on U.S. Exchanges, worth $1.2 trillion.
One such recent example is the Xiamen, China-based beverage chain, Luckin Coffee. They have recently been notified of their removal via a delisting notice from Nasdaq after the company’s COO was found last month to have fabricated as much as $310 million in sales in 2019.
Their shares debuted on the Nasdaq at $17 each on May 16, 2019 and reached a high value of $50.02 on January 17. This false assessment based on the stock exchange, values the coffee company at a whopping $12.02 billion. The value of the java company dropped to a staggering $700 million on Wednesday.
China just needs to be “responsible and there needs to be no double standards,” Senator Martha McSally, (R-AZ), told FOX. “If a U.S. company has to meet certain requirements and auditing to be on the New York Stock Exchange, shouldn’t we ask that of Chinese companies as well?”
