US Securities Regulators to Delist Chinese Companies Refusing to Disclose Corporate Governance

US-Listed Chinese Companies Must Disclose Government Ownership Status

[Asia Economy Reporter Yujin Cho] The U.S. securities authorities have established new regulations mandating foreign companies to disclose their corporate governance and delisting those that refuse to comply. This move is aimed at Chinese companies that have effectively refused oversight by U.S. authorities, signaling an acceleration in the U.S.'s crackdown on Chinese firms.

On the 2nd (local time), the U.S. Securities and Exchange Commission (SEC) unveiled rules requiring foreign companies listed on U.S. stock exchanges to disclose whether they are owned or controlled by their governments. These rules were created as detailed regulations to implement the "Foreign Company Accountability Act," passed by the U.S. Congress last December.

The new rules also include provisions allowing the delisting of companies that refuse inspection by the Public Company Accounting Oversight Board (PCAOB), the U.S. accounting oversight body, for three consecutive years.

While these regulations apply to all foreign companies listed on U.S. stock markets, foreign media report that they are effectively targeting Chinese companies.

Until now, the U.S. has demanded direct investigations of accounting firms auditing Chinese companies traded on its stock markets, but Chinese authorities have refused PCAOB inspections of their domestic companies, citing "national sovereignty."

SEC Chairman Gary Gensler stated in a press release that "over 50 countries have cooperated with PCAOB accounting inspections, but historically only two have not: China and Hong Kong."

Chairman Gensler added, "If a foreign company wants to issue securities in the U.S., the accounting firm auditing that company's books must be subject to PCAOB inspections."

The SEC explained that this measure is for investor protection. The law and rules pressuring the accounting transparency of Chinese companies were created following the Lu Xing Coffee scandal last year, which caused trillions of won in losses to global investors due to accounting fraud.

Meanwhile, the Chinese companies currently listed on U.S. stock markets by market capitalization are Pinduoduo ($83.3 billion), Nio ($67.5 billion), Didi Chuxing ($36.8 billion), KE Holdings ($23.8 billion), Lufax ($15.7 billion), Manbang ($13.6 billion), Kanzhun ($13.1 billion), Tencent Music ($12.2 billion), Futu ($7 billion), and Weipinhui ($6.6 billion).