After Didi losses, US lawmakers demand probe into Chinese companies on American stock exchanges

Chinese investigation of Didi ‘conveniently occurred after the company was able to snatch billions of dollars from American investors,’ say Republican senators
Lawmakers request inquiry into US-listed Chinese companies, the firms that underwrite their IPOs and companies behind indices with Chinese firms as constituents

Didi Chuxing

Robert Delaney

Published: 4:50am, 30 Jul 2021

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A group of Republican lawmakers added pressure on America’s securities regulator to investigate Chinese companies listed on US exchanges, citing losses sustained by Didi shareholders as a result of a probe launched by Beijing, while a bipartisan bill was introduced in the Senate targeting Huawei Technologies Co. and ZTE.

Tom Cotton of Arkansas, Rick Scott of Florida and Alaska’s Dan Sullivan are among seven Republican senators pressing Securities and Exchange Commission (SEC) Chair Gary Gensler to initiate “robust” investigations of US-listed Chinese companies, the US financial firms that underwrote their initial public offerings and companies that compile stock indices with Chinese firms as constituents.

The timing of the Cyberspace Administration of China’s investigation of Didi, which is listed as Didi Global in the US, “conveniently occurred after the company was able to snatch billions of dollars from American investors”, the lawmakers said in a letter to Gensler on Wednesday, adding that penalties the company faces in China “means that these American dollars could be going directly into [Chinese Communist Party] coffers”.

The letter also cited CAC investigations of China’s Full Truck Alliance and Boss Zhipin, which underscore the risks posed by a Chinese government “that is nervous about their own tech firms’ power and increased oversight by US regulators”.

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Kanzhun, the company behind Boss Zhipin, and Full Truck Alliance are both listed on US exchanges.

The SEC did not immediately respond for a request for comment on whether it would act on the lawmakers’ demands.

Cotton and many other US lawmakers, including Democrats, have made countering China a legislative priority, reflecting mounting tensions between the two countries on multiple fronts, from financial ties to territorial claims, even as the two sides engage in diplomacy aimed at lowering the temperature.

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Arkansas’ Cotton introduced on Wednesday a bill cosponsored by Virginia Senator Mark Warner, a Democrat, that would prohibit state and local governments from using the American Rescue Plan, a US$1.9 trillion coronavirus rescue package that compensates them for lost tax revenues lost during the pandemic, to purchase Chinese telecommunications equipment, including from Huawei and ZTE.

The two companies were already designated by the Federal Communications Commission (FCC) as national security threats, which led to a ban on American firms using funds allocated by the agency to purchase their products, but that measure has not gone far enough for some lawmakers.

“The FCC rules only apply to networks supported by FCC funding,” a representative of Warner’s office said. “There is significant funding going to state and localities for broadband usage through [the American Rescue Plan] that would not be subject to those same restrictions.”

Last month, the FCC voted to advance a ban on approvals for equipment in US telecommunications networks from Chinese companies deemed national security threats like Huawei and ZTE. Under proposed rules that won initial approval, the FCC could also revoke prior equipment authorisations issued to Chinese companies.

Republican Arkansas Senator Tom Cotton in Washington on April 28. Photo: AFP via Getty Images/TNS

The most prominent manifestation of Congress’ bipartisan push to counter China came last month, when the Senate passed the 2,400-page US Innovation and Competition Act of 2021 by a vote of 68 to 32.

While shoring up US competence on a number of technological fronts, including semiconductor production and catching up on 5G telecommunications technology, the bill also leaves Huawei on a list of restricted entities, banning it from gaining access to US hardware and software until it can prove that it no longer poses any threat to US national security.

A similarly expansive bill is making its way through the House of Representatives, and will need to be reconciled with the Senate version before it is sent to US President Joe Biden’s desk.

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In the meantime, lawmakers of both parties continue to churn out China-related legislation and pronouncements.

The Taiwan Partnership Act was introduced by Illinois Democrat Senator Tammy Duckworth and a group of Republicans including Texas senators John Cornyn and Ted Cruz as well as Florida’s Scott last week, in a bid to bolster “exchanges between senior defence officials and general officers of the US and Taiwan to improve interoperability, improve Taiwan’s reserve forces, and expand humanitarian and disaster relief cooperation”.