U.S. and Chinese flags seen at the US Department of State on May 23, 2018.
Brendan Smialowsk | AFP | Getty Images
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The U.S. Senate passed legislation on Wednesday that could ban many Chinese companies from listing shares on U.S. exchanges or raising money from American investors without adhering to Washington’s regulatory and audit standards.
The bill, sponsored by Louisiana Republican Sen. John Kennedy, would require companies to certify that “they are not owned or controlled by a foreign government.” Alibaba, the e-commerce giant based in China, saw its U.S.-listed shares fall more than 2% on the news.
Though the law could be applied to any foreign company that seeks access to U.S. capital, lawmakers say the move to strengthen disclosure requirements is aimed principally at Beijing.
The White House did not immediately respond to CNBC’s request for comment.
“The Chinese Communist Party cheats, and the Holding Foreign Companies Accountable Act would stop them from cheating on U.S. stock exchanges,” Kennedy, a member of the Senate Banking Committee, wrote on Twitter Tuesday afternoon. “We can’t let foreign threats to Americans’ retirement funds take root in our exchanges.”
Specifically, the statute would require a foreign company to certify it’s not owned or manipulated by a foreign government if the Public Company Accounting Oversight Board is unable to audit specified reports because the firm uses a foreign accounting firm not subject to inspection by the board. The Public Company Accounting Oversight Board is the nonprofit body that oversees audits of all U.S. companies that wish to raise money in the public markets.
Furthermore, if the board is unable to inspect the company’s accounting firm for three consecutive years, the issuer’s securities are banned from trade on a national exchange.
The bill’s passage via unanimous consent around noon reflects the growing anger among U.S. lawmakers toward China, its handling of the Covid-19 outbreak and what many American regulators say is a persistent disregard of American financial disclosure standards.
“Hopefully, this is a wake-up call to China to bring itself into conformity with the rest of its world and allow transparency into the audits of its companies,” Clete Willems, a former Trump administration trade advisor and partner at Akin Gump, told CNBC.
The soured sentiment toward China isn’t confined to Capitol Hill, either.
The White House last week directed the body in charge of overseeing billions in federal retirement savings to halt plans to invest in Chinese companies. Labor Secretary Eugene Scalia warned that then-current plans to invest federal savings would place “billions of dollars in retirement savings in risky companies that pose a threat to U.S. national security.”
Scalia, who both cited bipartisan calls to restrict U.S. investment in China, wrote that President Donald Trump was concerned that federal employees — including members of the U.S. armed forces — could wind up supporting companies at odds with American geopolitical interests.
A supporting letter penned by National Economic Council Director Larry Kudlow and national security advisor Robert O’Brien reinforced the White House view that such investments in China could “‘present significant national security and humanitarian concerns for the United States.'”
The Securities and Exchange Commission, the entity that oversees wide swaths of American securities markets and federal rules, has also recently warned that investments in foreign-based companies could pose extraordinary risks.