U.S. President Donald Trump will sign into law a bill passed by both Houses of the U.S. Congress that prevents China and other foreign companies from listing on U.S. stock exchanges if they don't comply with auditing rules.
The Holding Foreign Companies Accountable Act passed the House by unanimous voice vote earlier this week after being unanimously approved by the Senate in May. The bill was jointly introduced by Republican Senator John Kennedy from Louisiana and Democratic Senator Chris Van Hollen from Maryland.
"This may be one of the most important investor protection pieces of legislation this year," said Rep. Brad Sherman (D-CA), chair of the subcommittee overseeing capital markets on the House Financial Services Committee.
Sherman is confident Trump will sign the bill into law. He also said Kennedy "certainly hasn't heard that the president plans to veto the legislation."
When it becomes law it will deny China the money made by China company initial public offerings in the U.S. It might force China companies to list on exchanges outside the U.S.
"All Chinese companies listed in the U.S. will face enhanced scrutiny by the U.S. authorities and inevitably consider all available options," Shaun Wu, a Hong Kong-based partner at law firm Paul Hastings, said.
Wu said the incoming administration of president-elect Joe Biden will enforce the law. Anti-China measures are among the few issues enjoying bipartisan support in the U.S. Congress.
Goldman Sachs said earlier the bill will force foreign businesses to de-list only if they can't be audited for three consecutive years.
A number of China companies, however, are preparing for the bill's passage by moving to secondary listings on the Hong Kong stock exchange and other bourses.
The law targets companies from any country but its sponsors intended it to hit Chinese companies listed in the U.S. such as e-commerce and internet giant Alibaba Group Holding Ltd. and state-owned PetroChina Co. Ltd., Asia's largest oil and gas producer. It also targets officials of the Communist Party of China.
China has opposed the bill since it was filed in March 2019. Ministry of Foreign Affairs representative Hua Chunying said China firmly opposed politicizing securities regulation.
"We hope the U.S. side can provide a fair, just and nondiscriminatory environment for foreign companies to invest and operate in the U.S., instead of trying to set up various barriers," he pointed out.
China has refused to allow American regulators to review accounting audits as required under the Sarbanes-Oxley Act of 2002.
The bill bars securities of foreign companies from being listed on any U.S. exchange if they fail to comply with the U.S. Public Accounting Oversight Board's audits for three years in a row.
The bill will require public companies to reveal if they are owned or controlled by a foreign government. It requires foreign issuers of securities using foreign accounting companies to disclose information related to any board members who are officials of the Communist Party of China and whether the articles of incorporation of the issuer contain any charter of the party.
It also mandates the disclosure of the percentage of shares owned by government entities where the issuer is incorporated, and whether these have a controlling financial interest.
