President Donald Trump on Friday signed legislation that could exclude Chinese companies from U.S. stock exchanges unless U.S. regulators can review their financial audits, a move that could further escalate tensions between the two countries.
The measure, which could affect corporate giants like Alibaba Group Holding Ltd. and Baidu Inc., serves Beijing again before Trump leaves office in January.
The president has long criticized China for what he calls unfair trade practices and has imposed tariffs on billions of dollars in imports. But his rhetoric has sharpened this year as he blames Beijing for the global coronavirus pandemic – a central issue in his electoral defeat to Joe Biden, with Trump having been widely criticized for his handling of the epidemic.
The expungement law gained bipartisan support in the House earlier this month after easily wiping out the US Senate in May. While this applies to any foreign business, the bill’s sponsors have said their goal is to target China.
Chinese companies have for years used the US financial markets and dollar-based finance as a key financing element to grow their businesses. While the measure includes a phase-in period, with penalties that come into play after three consecutive years of non-compliance, it could inflict real damage on Chinese companies that fail to meet auditing standards.
“US policy is to let China flout the rules that US companies play, and that’s dangerous,” Republican Senator John Kennedy of Louisiana, one of the main sponsors of the new law, said in a statement.
Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing after the House bill was passed that China was “against the politicization of securities regulation” and called for the cooperation to protect the rights of investors.
“It would undermine the confidence of global investors in US financial markets and undermine the global position of US financial markets and harm US interests,” Hua said.
Trump’s signing of the law capped a wave of recent measures against China, including guidelines that would limit travel visas for 92 million Communist Party members. Any of them on a 10-year visa would now see it reduced to one month.
The US Department of Homeland Security said customs officials at US ports would seize “shipments containing cotton and cotton products from” the Xinjiang Production and Construction Corps., An entity affiliated with the military that is one of the largest Chinese producers. This follows an earlier US action against the company that prohibits it from doing any transactions with US companies and citizens.
Decisive moment
The new law marks a turning point in a long-standing dispute over China’s refusal to let the Public Company Accounting Oversight Board review audits of companies whose shares are traded in the United States. The agency, which was created in the wake of the Enron Corp. accounting scandal, aims to prevent fraud and wrongdoing that could wipe out shareholders.
In addition to requiring companies to allow U.S. inspectors to review their financial audits, the measure – introduced by Kennedy and Senator Chris Van Hollen, a Democrat from Maryland – requires companies to disclose whether they are under government control.
Van Hollen said in a statement that the delisting bill would protect people who “have had their money cheated after investing in seemingly legitimate Chinese companies that are not held to the same standards” as other companies. public. “This bill corrects that wrong, by ensuring that all companies on the US stock exchanges follow the same rules,” he said.
The enforcement of the law rests heavily with the United States Securities and Exchange Commission. Trump-appointed SEC Chairman Jay Clayton rushed to propose rules before stepping down by year-end, which would trigger off the list of companies that break the rules American audit. Clayton said on Friday he was abandoning the effort to ensure the agency’s plan complies with the legislation just signed.
“While I am disappointed that I did not have the opportunity to review the staff recommendation, I am satisfied with the bipartisan, multi-agency approach to addressing these critical investor protection issues,” Clayton said in a statement. .
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