Chinese Companies Must Play By American Rules Or Be Banned From U.S. Exchanges, Senate Rules

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Sergei Klebnikov   Forbes U.S. Staff

Senate US

The Senate, by unanimous consent on Wednesday, passed legislation that would ban many Chinese companies from listing shares on U.S. stock exchanges or raising money from American investors, as tensions between the world’s two largest economies continue to flare up.

KEY FACTS

- The bill, entitled the Holding Foreign Companies Accountable Act, would delist Chinese companies from Nasdaq, NYSE and other exchanges for failing to follow U.S. securities laws.

- Originally introduced by Senators John Kennedy (R-La.) and Chris Van Hollen (D-Md.) in March 2019, the bill would require companies to certify that “they are not owned or controlled by a foreign government.” 

- They’d also be required to open their books to the Public Company Accounting Oversight Board—refusal to do so for three consecutive years would result in a ban and delisting.

- “The Chinese Communist Party cheats,” and this bill would stop them from doing so, Kennedy argued on Twitter. “It’s asinine we’re giving Chinese companies the chance to exploit hard-working Americans because we don’t insist on examining their books.”

- On Tuesday, China's Luckin Coffee was delisted from the Nasdaq over allegations of accounting fraud; its founder and its chairman were once billionaires based on their stake in the company but have since seen their fortunes tank.

- The legislation is the latest example of rising pushback against China—over trade and other issues, which has been amplified in recent weeks by President Donald Trump, who has accused China of being the main culprit behind coronavirus. He again criticized China about its handling of coronavirus on Wednesday, blaming the country’s “incompetence” for “this mass Worldwide killing.” 

- The hardline stance on China in recent weeks has some experts worried about derailment of the phase one trade deal—something Trump has repeatedly threatened to do.

CRUCIAL QUOTE

“I do not want to get into a new Cold War,” Kennedy said in the Senate on Wednesday. “All I want, and I think all the rest of us want, is for China to play by the rules.”

KEY BACKGROUND

The bill’s passage without any objection reflects the growing frustration with China among U.S. lawmakers. Both President Trump and Secretary of State Mike Pompeo have recently pushed a controversial theory that the coronavirus originated in a lab in Wuhan, China, though there is no evidence supporting this claim. Just last week, Republican Senators introduced the “COVID-19 Accountability Act,” which would authorize Trump to impose sanctions on China if it does not cooperate with an investigation into the origins of the pandemic. That same day, the Labor Department directed a $557 billion federal pension fund to halt all investments in Chinese stocks because it “pose[s] a threat to national security” (since China won’t allow U.S. regulators access to audit reports).

There has also been a renewed focus on the trade war with the phase one deal that was signed in 2019 now at risk. Trump’s administration has threatened to void the deal if China doesn't uphold purchasing commitments. “If they don't buy, we'll terminate the deal. Very simple,” the president recently said on Fox News.

WHAT TO WATCH FOR

“As the virus risk is abating globally, political/geopolitical fallout is emerging as a new and significant risk,” Marko Kolanovich, J.P. Morgan’s global head of macro quantitative and derivatives research, told CNBC. “For example, just today the U.S. senate passed a bill to bar Chinese companies from being listed on U.S. exchanges.”

TANGENT

U.S. shares of Chinese e-commerce giant Alibaba fell by more than 2% on the news, before paring back losses somewhat.

 

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Sergei Klebnikov   Forbes U.S. Staff

I am a New York—based reporter for Forbes covering breaking news, with a focus on financial topics. Previously, I wrote about investing for Money Magazine and was an intern at Forbes in 2015 and 2016. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History.