Analysis: why US authorities threaten Chinese companies by forcibly withdrawing their shares from stock trading

In the US, a month has been discussing a new legislative the initiative – Holding Foreign Companies Accountable Act. This bill obliges foreign companies to prove the fact that foreign governments do not own any share in them. If this fails, or the American regulators are unable to conduct an audit, delisting may be punished, that is, forcibly removing the company’s shares from trading on exchanges in the United States.

Analysts believe that the bill is mainly directed against Chinese companies like Alibaba and Baidu. How serious everything is, and what is the reason for tightening control – we understand our new material.

What happened

In late May, the US Senate unanimously supported the Holding Foreign Companies Accountable Act. According to the text of the document, transparency will be required of foreign companies to conduct an audit and provide evidence of the lack of control on the part of foreign governments.

If a company cannot clearly prove such a fact, or the Public Company Accounting Oversight Board (PCAOB) is unable to audit the company for three consecutive years, the shares of such a company will be banned from trading on exchanges in the United States.

According to the authors of the bill, at present the Chinese government does not allow PCAOB to audit companies registered in China and Hong Kong. In total, 224 companies from countries where similar obstacles exist, most of them Chinese, are traded on US exchanges. The total capitalization of such companies is more than $ 1.8 trillion.

In a response statement, the China Stock Regulatory Commission (an analogue of the US SEC) stated its rejection of “such acts of politicizing stock regulation.” The text also says that Chinese regulators are making every effort to increase cooperation with foreign colleagues to conduct audits.

How New Law May Affect Chinese Business

Tighter regulations in the United States could adversely affect plans to raise funds on the stock exchange of many large Chinese companies. For example, analysts at Bloomberg predict difficulties with the IPO of the owner of TikTok ByteDance and Ant Financial billionaire Jack Ma.

At the same time, the discussion of the bill has been going on for some time, so Chinese companies are preparing for its possible adoption. For this, many of them have already carried out IPOs in Hong Kong.

The adoption of the bill in the Senate negatively affected the value of shares of large Chinese companies trading in the United States. However, experts do not yet expect more serious problems for them. The fact is that for the entry into force of the bill on new audit requirements, it must also receive the approval of the House of Representatives, and then the President of the country.

So far, the shares of Chinese companies Alibaba, Baidu and others are traded on US exchanges without restrictions. This means that you can buy them also from Russia without having to open a separate brokerage account with foreign brokers. Through St. Petersburg Exchange Foreign Securities Market investors can buy 500 liquid shares of leading companies in all sectors of the global economy, including all shares of the S&P 500 index.

To make transactions with such shares, you need a brokerage account – open it can online.

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