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Chinese Companies to Face More Scrutiny as Bill Clears House
If they didn’t disclose more information, they could risk removal from U.S. stock exchanges under the legislation, which President Trump is expected to sign.
By Ana Swanson and
WASHINGTON — The House of Representatives passed legislation on Wednesday that would increase oversight of Chinese companies listed on American stock markets, the latest attempt by the United States to scrutinize financial ties with China.
The bill, the Holding Foreign Companies Accountable Act, would require the companies to disclose more information about any ties to foreign governments and the Chinese Communist Party, and would remove them from the U.S. exchanges after three years if they did not provide U.S. regulators access to their audit information.
The Senate passed a companion bill in May, and President Trump is expected to sign it into law.
Politicians from both parties have criticized the lack of transparency in the Chinese financial system, saying it could be putting American investors at risk of fraud. Chinese law restricts auditors from transferring certain company financial information out of the country, limiting its visibility to U.S. regulators.
Many major Chinese companies do not comply with American regulatory standards, including Baidu, China Mobile, PetroChina and the Semiconductor Manufacturing International Corporation, according to the Public Company Accounting Oversight Board, the U.S. auditing regulator. Under the new legislation, they could eventually be pushed off American stock exchanges if China does not change its financial practices.
Senator John Kennedy, the Louisiana Republican who sponsored the bill in the Senate, said U.S. policy had permitted China to “flout rules that American companies play by,” creating a dangerous situation for American investors in public companies.
“Today, the House joined the Senate in rejecting a toxic status quo, and I’m glad to see this bill head to the president’s desk,” he said.
On Wednesday, before the vote, Hua Chunying, a spokeswoman for China’s Foreign Ministry, said the legislation showed that the United States “has adopted a discriminatory policy against Chinese companies” and that “the right way to solve the problem is for all parties concerned to strengthen cross-border regulatory cooperation in a frank and open manner.”
People familiar with China’s economic policymaking said Beijing officials were frustrated with the American stance on the issue.
China has tried hard for more than two years to reach a compromise, these people said, and perceives the issue as an all-or-nothing stance by the Trump administration in demanding extensive financial records from Chinese companies.
China is not that worried if the new legislation takes effect, these people said. The stock markets of Shanghai and Hong Kong are much larger and deeper than they were a generation ago, and valuations for many companies are often higher than in New York. So Chinese companies can raise money at home if the United States makes them unwelcome, they said.
Until recently, China’s stock exchanges did have one important shortcoming: Only profitable companies were allowed to start selling shares. That meant fast-growing but unprofitable companies, especially in the tech industry, often looked to the United States instead.
Two years ago, the Shanghai Stock Exchange created an additional market that does allow unprofitable but fast-growing companies to sell shares and obtain a listing. That market is the Science and Technology Innovation Board, usually known as the STAR market.
The Trump administration has passed a series of measures aimed at severing economic ties between the United States and China, and it shows little sign of letting up in its final months.
Increasingly, those measures have focused on the financial investments that link the world’s two largest economies. Last month, Mr. Trump issued an executive order prohibiting American investment in a list of Chinese companies with ties to the military.
The Securities and Exchange Commission has also proposed regulations that would prohibit Chinese companies from conducting initial public offerings on American stock markets or delist Chinese companies that didn’t comply with American auditing rules. Under pressure from the Trump administration, a federal retirement fund also halted plans this year to invest in Chinese companies.
On Wednesday, Customs and Border Protection also issued another round of restrictions barring imports of goods made with cotton from Xinjiang, the far western region where China has detained as many as a million Uighurs and other ethnic minorities in internment camps and prisons.
The administration has accused several companies of using forced labor to make their products and said Wednesday that it would block imports produced by the Xinjiang Production and Construction Corps, an economic and paramilitary group that plays an important role in Xinjiang’s development, or its affiliates.
The corps is responsible for a substantial amount of cotton production in Xinjiang, which grows 85 percent of the cotton in China. It also runs detention facilities that use Uighurs and other Muslims as slave or forced labor to farm and process cotton, U.S. customs officials said.
Ana Swanson reported from Washington, and Keith Bradsher from Beijing.
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