On Wednesday, the House of Representatives unanimously passed a bill that could result in Chinese companies being delisted from U.S. stock exchanges. The Foreign Company Liability Act (HFCAA) was sent to President Trump, who is expected to sign the measure later today, which also received unanimous support in the Senate earlier this year.
The sweeping legislation would require foreign companies to submit to increased accounting disclosures and to certify that they are neither owned nor controlled by a foreign government. It also includes provisions for the statements to be supported by an audit conducted in accordance with US accounting rules by the Public Company Accounting Oversight Board (PCAOB).
The legislation could result in a number of popular Chinese companies being delisted from major US stock exchanges, including e-commerce players. Ali Baba (NYSE: BABA) and JD.com (NASDAQ: JD), as well as the Internet search giant Baidu (NASDAQ: BIDU) and manufacturer of electric vehicles (EV) NIO (NYSE: NIO).
Last month, the Securities and Exchange Commission announced that it was preparing to pass stricter rules that could take effect as early as 2022. These requirements lay the groundwork for delisting foreign stocks when their companies do not follow the rules. American audit.
Regulators have long been upset by the Chinese government’s refusal to allow the PCAOB to review audits of Chinese companies listed on the US stock exchanges. Some believe this contributed to the dramatic fall from grace of Cafe Luckin (OTC: LKNC.Y), which erupted earlier this year after the discovery of massive and widespread fraud. It was found that the company made a significant portion of its 2019 revenue and was subsequently started from the Nasdaq exchange.
Many companies in China have admitted to contingency plans if the bill is passed. NetEase (NASDAQ: NTES) and JD.com each recognized the proposed rules when they announced subsequent listings on the Hong Kong Stock Exchange.