House Passes Bill Forcing Chinese Companies To Agree To Audit Oversight Or Delist From US

Not long after a top US intelligence official unveiled the existence of a Chinese intelligence operation, the House passed a bill that, should it become law, would force Chinese companies listed in the US to either adhere to strict American accounting standards, or delist and go elsewhere.

We’ve reported on the push to pass the bill several times. Trump made the issue a high priority this fall as election day neared. The bill targets a loophole that allows Chinese companies to essentially write their own rules when it comes to auditing, something that has led to literally dozens of corporate frauds that have cost American and international investors billions of dollars.

The collapse of Luckin Coffee and the CCP’s bailout of Evergrande helped to underscore the fact that Chinese companies essentially play by their own rules, and if foreign investors get screwed, so be it.

But the Trump team made it a centerpiece of its late game push against China, and now the legislation has finally passed the Democrat-controlled House. It’s in Trump’s hands now, as GOP Sen John Kennedy, one of its authors, pointed out in a tweet. Though we suppose it’s possible the US could strike some kind of deal with Beijing in the mean time.

The news has hit the offshore yuan; it has perhaps also stoked fears that the US might somehow miss out in the economic resurgence reportedly taking place in Asia, which has done a much better job of stamping out the virus than the rest of the world.

The surfeit of fraud-ridden Chinese firms created an atmosphere where short sellers like Citron Research and Muddy Waters Research minted reputations (and billions of dollars for themselves and their backers) as they rooted out evidence of fraud like a kind of hedfe fund blood sport.

These firms have collectively worked, along with others, to help expose innumerable frauds and misstatements from companies based in China. A movie, “The China Hustle”, was even made about this very topic.

The Public Company Accounting Oversight Board, an entity created by Sarbannes-Oxley to oversee accounting standards at US-listed companies, has been repeatedly unsucessful in its attempts to secure cooperation from China on a broad scale. The PCAOB has often had to sue Chinese audit firms and negotiate with Chinese regulators for more information. Now, new regulations could put the responsibility on the listing exchanges, like NASDAQ and NYSE, who choose to give credibility to China-based entities by accepting their listing fees and putting them on their well known exchanges.

It has been reported that the administration is trying to pass the new rules before outgoing SEC head Jay Clayton leaves at the end of the year. The Biden administration can then presumably “tweak” them to a degree.

These same exchanges have helped make Chinese businessmen like Alibaba founder Jack Ma into billionaires. But they never even managed to offer any kind of real oversight of companies like Alibaba.

Ma is now getting his comeuppance after publicly griping about some obscure regulatory feature in China, apparently angering China’s leaders to such a degree that they cancelled the spinoff of Alibaba’s Ant Financial.

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