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US Senate passes bill that puts some Chinese listings at risk

The US Senate passed a bill on Wednesday that could force some Chinese companies to de-list from US exchanges if they do not comply with American accounting regulations.

The legislation, which needs also to be passed by the House of Representatives, calls for a company to be barred from listing securities on US exchanges if it has not complied with the US accounting board’s audits for three consecutive years. It would also require listed companies to disclose whether they are owned or controlled by a foreign government.

The Public Company Accounting Oversight Board, which audits the accounts of public companies, is prohibited from inspecting the accounts of companies registered in China or Hong Kong, according to one of the bill’s sponsors, John Kennedy, a Republican senator from Louisiana.

Mr Kennedy, who introduced the bill in late March along with Democrat senator Chris Van Hollen of Maryland, said the Securities and Exchange Commission protected American investors from being “swindled by American companies,” but Chinese companies were not as well scrutinised.

“There are plenty of markets all over the world open to cheaters, but America can’t afford to be one of them,” said Mr Kennedy. “China is on a glide path to dominance and is cheating at every turn.”

Mr Van Hollen said the economic effects of the coronavirus pandemic made protecting “main street investors” more important.

“For too long, Chinese companies have disregarded US reporting standards, misleading our investors,” he added. 

While the bill passed in the Senate by unanimous consent, it is unclear when, or if, it will be taken up by the Democratic-controlled House of Representatives. An aide familiar with the legislation said a companion version of the Senate bill had not yet been introduced in the House.

After reaching a brief detente in their trade war late last year, the US and China are once again clashing publicly on several fronts, including Washington’s national security concerns about Chinese telecoms company Huawei and Beijing’s handling of coronavirus.

On Wednesday, Mike Pompeo, US secretary of state, drew China’s ire by publicly congratulating the newly elected president of Taiwan, which China claims as its territory. It was the first time that a US secretary of state had publicly congratulated a Taiwanese president.

China’s ministry of foreign affairs expressed its “strong indignation and condemnation” in a statement, vowing to take “necessary measures” in response to the US’s “wrong moves”.

China hawks on Capitol Hill have been given further ammunition for their cause in recent weeks after the US-listed Chinese company Luckin Coffee revealed that an internal investigation found hundreds of millions of dollars of its sales last year were “fabricated”.

Shares in US-listed Chinese companies have already come under pressure following the events at Luckin. On Wednesday, US-listed shares of Chinese ecommerce giant Alibaba, Internet streaming company iQiyi, search engine company Baidu and online retailer JD.com all fell.

Luckin shares, which had been halted since early April, fell more than 35 per cent after they resumed trading on Wednesday.

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