As the Trump administration rushes to lay down guidelines that will bind or embarrass its successor, the US Securities and Exchange Commission is pushing the Securities and Exchange Commission forward, a plan that could ultimately create value in Chinese companies of about $ 2 trillion ($ 2). 7 trillion) dumped from the US stock exchanges.
The SEC’s push, part of a long-standing dispute over audits of Chinese companies that went back nearly 20 years, has alarmed the Chinese sufficiently that China’s premier securities regulator is calling for further negotiations to work as soon as possible.
It should be said that the US position is valid and the policy it pursues is not limited to China but applies to all foreign listings on US stock exchanges. However, China is the only major jurisdiction that refuses to comply.
China’s companies have come to Wall Street in recent years because they offer access to a much deeper pool of capital than is available in their home market. Credit: AP
Following the accounting scandals exposed in the collapse of Enron and WorldCom earlier this century, the Sarbanes Oxley Act of 2002 created a new body, the Public Company Accounting Oversight Board (PCAOB), which im The auditors of public limited companies are to be checked.
Chinese companies have been listed in the US since the early 1990s. In 2009, however, the authorities issued a policy that restricted overseas regulators from overseeing auditors based in China. Any overseas regulatory agency wishing to view the accounts of a Chinese company must seek approval from the Chinese authorities. The reason for the directive was « national security ».
There has been a lot of back and forth between the US and China on this matter since then, but two developments have brought new life and urgency to the US position.
One was the Trump administration’s increasingly hostile stance towards China, with its trade war and financial sanctions, the other was the collapse of China’s home version of Starbucks, Nasdaq-listed Luckin Coffee, earlier this year amid massive accounting scams uncovered by short seller Muddy Waters. Luckin admitted the fraud in April.
In May, the US Senate passed law banning companies from listing on US stock exchanges if the PCAOB was unable to see their auditor’s working papers for three consecutive years. The legislation was supported by two parties.
In August, the US President’s Working Group on Financial Markets, which includes SEC chairman Jay Clayton and Treasury Secretary Steve Mnuchin, reportedly called on the SEC to take action. It was like that a few days ago.
Last week’s SEC proposal, if implemented, would force the New York Stock Exchange and Nasdaq to require compliance with audit inspections. Otherwise, the shares of the non-compliant companies would be delisted. Companies would have until 2022 to follow the directive.
While China is seeking more talks and promoting a « co-audit » approach, where Chinese authorities and PCAOB-approved companies would conduct joint inspections, it wants to protect its national security, business secrets and strategic information of its companies some of which are state owned or controlled. The US wants unrestricted and unrestricted access to audits, while China wants to restrict it.
The SEC proposals will not be implemented if they are approved after publication before the Biden administration takes office in January. Meanwhile, Clayton, a Trump appointee, has announced that he will be leaving his role at the end of the year.
A Biden agent for the SEC chair will determine the final fate of the proposal, but that shouldn’t comfort the Chinese – the Democrats might approach China differently than the Trump administration, but they’re just as involved in the dispute over it invests geopolitical supremacy between the world’s two largest economies and the most powerful nations as Republicans.
There was a bipartisan agreement regarding the exam. In most major economies, access to financial markets and the capital they provide requires local regulatory and disclosure requirements.
China’s companies, especially its technology companies, have entered the US market in recent years because they offer access to a much deeper capital pool on more attractive terms and in much shorter time frames than in China.
Recently, some changes in listing rules in Hong Kong have made this market another viable option – this is where the world’s largest IPO is taking place, $ 34 billion ($ 46 billion) by Jack Ma’s Ant Group More than $ 300 billion was set to take place before Chinese authorities pulled the carpet out from underneath.
Nonetheless, the US market remains compelling for overseas companies looking to raise capital, especially tech companies that benefit from the halo effect of major US tech companies and US-listed Chinese companies that have achieved considerable success.
The Nasdaq Golden Dragon China Index tracks the Chinese companies listed in the USA. This year it’s up nearly 40 percent from the 32 percent on the Nasdaq and 12 percent on the S&P 500. 5 percent.
The problem for China to go along with the SEC’s proposal is that in addition to the technology companies and their potentially valuable trade secrets, a number of the Chinese companies on the US lists are state-owned or controlled and for their longer lives National strategic plans and interests are of central importance.
While Alibaba is the largest Chinese company publicly listed with a market capitalization of around $ 730 billion ($ 992 billion), state-owned China Life ($ 202 billion), China, among others Mobile ($ 171 billion) and PetroChina ($ 153 billion).
There are many others that are either controlled by China or in which the state has a major stake, but China in any case reserves the right to run privately owned companies for reasons of national security.
The recent spate of corporate bond defaults, including some rated AAA by domestic Chinese rating agencies, will only encourage U.S. regulators and lawmakers to take a hard line on the scrutiny issue to U.S. -protect American investors.
Aside from high-profile efforts to force the sale of Tik Tok’s U.S. business, the Trump administration has banned U.S. investments in Chinese military-affiliated companies and sanctions individuals and corporations for their role in treating the U.S. -Business imposed on Uyghurs and China’s actions in Hong Kong.
It also pressured the U.S. federal government employee pension fund not to invest in an international index that included stocks of Chinese companies.
The SEC action is not the only iron in the fire when it comes to US actions against Chinese companies. However, this is in line with the Trump administration’s efforts to eliminate economic ties it believes are beneficial to China – disrupting trade and investment flows, and revoking visas for Chinese students and researchers – to address the challenges facing China to weaken US economic and geopolitical supremacy.
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Stephen is one of Australia’s most respected business journalists. Most recently, he was the co-founder and co-editor of the Business Spectator website and co-editor and senior columnist at The Australian.
U. . S.. . Securities and Exchange Commission, accounting firm, regulatory body for public company accounting, accounting, emerging markets
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