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US-Listed China Stocks Have 3 Years To Become Transparent

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As widely expected, US President Donald Trump has signed a law under which Chinese companies could be removed from American stock exchanges if they fail to comply with US auditing oversight rules.

The bill, entitled the “Holding Foreign Companies Accountable Act”, requires the companies to disclose more information about any ties to foreign governments and the Chinese Communist Party. 

The U.S. authorities will remove those companies from U.S. exchanges after three years if they fail to provide access to their audit information during that time period. 

The bill was passed by the Senate in May and the U.S. House of Representatives earlier this month. It was initially proposed last year by Republican Senator John Kennedy, in order to protect American investors from less-than transparent Chinese companies.

“Communist China is right now using U.S. stock exchanges to exploit American workers and families – people who put their retirement and college savings in public companies,” Senator Kennedy wrote in a press release on Wednesday, following the House approval of the bill.

The law applies to all foreign companies listed on US exchanges but is clearly directed at Chinese firms, whose opacity US regulators have been battling for decades while Beijing continues to insist that opening the books is not possible in the name of national security and state secrets. 

China’s Ministry of Commerce said it opposed the move and will take necessary measures to protect the interest of Chinese companies, without elaborating on the measures. 

Currently, 217 Chinese firms with a combined market capitalization of $2.2 trillion are listed on major US stock exchanges. Yet, many major Chinese companies, such as Alibaba, China Mobile, PetroChina do not comply with U.S. regulatory standards.

According to the recent US-China Economic and Security Review Commission report, since February last year, sixteen Chinese companies have delisted from US stock exchanges

Chinese companies are not that worried about the new legislation as many already have secondary listings in Hong Kong or at home.

More to the point, China’s tech companies have enough to worry about at home to the effect that the new law signed by Trump is not likely to cause too many ripples. 

At home, China is gunning after its fintech giants who have grown too big, too fast for the Community Party to keep up with. 

China’s markets watchdog has now opened a probe into Jack Ma’s Alibaba business practices concerning potentially anticompetitive behavior. The authorities also ordered Ma’s other online financial company, Ant Group, to more or less figure out a way to become less of a threat. 

It’s a double-edged sword for China, which simultaneously has been using these tech giants to create Chinese powerhouses of global tech dominance and reign them in when they become too influential. When Jack Ma publicly criticized banking officials and regulators earlier in October, it unleashed a backlash from the highest levels, beginning with the regulators’ quashing of Ant’s IPO just a day before it was to happen and new draft micro-lending rules designed to put Ant in its place. 

Bloomberg reported that the shares of major technology companies in the country have fallen sharply in recent days, with Alibaba, Tencent, JD.com and Meituan losing around $200 billion in value.

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