Chinese tech giants face US SEC ultimatum: comply with American accounting practices or delist
- The US Securities and Exchange Commission has implemented a Trump-era law requiring foreign US-listed companies to allow their accounting books to be reviewed
- The US is not likely to remain the top destination for Chinese tech IPOs, as many firms have already sought secondary listings in Hong Kong
New York-listed Chinese tech firms could soon face a tough decision to leave the US after the country’s Securities and Exchange Commission started implementing a Trump-era law, dashing hopes that tensions between the Washington and Beijing might thaw under the new Biden administration.
The SEC said on Wednesday that it is taking steps to enforce a law requiring accounting firms to let US regulators review the audits of overseas companies. Those that do not allow their books to be inspected for three years could be kicked off US exchanges under the Holding Foreign Companies Accountable Act (HFCA), which former US president Donald Trump signed into law in December, a month before he left office.
Chinese companies could have a hard time complying with that law, as domestic regulations ban businesses from giving foreign regulators access to their accounting documents without approval, and efforts from Chinese regulators and the US Public Company Accounting Oversight Board (PCAOB) to cooperate have made few inroads. The law also requires Chinese firms to disclose state influence and the names of Chinese Communist Party members on their boards, which could be resisted.
“This is a continuation of the Trump policy, which reduces communications with the Chinese Communist Party, and a detailed implementation of political policies,” said Edward Tse, founder and chief executive of Gao Feng Advisory Company. “It is intended to curb the development of [Chinese] technology companies.”
Stock prices of China’s US-listed tech giants tumbled on Wednesday. E-commerce platform Pinduoduo fell more than 8.7 per cent, while rival Alibaba Group Holding, owner of the South China Morning Post, had fallen by more than 3.4 per cent by market close. Tencent Music was down more than 20 per cent in a single day, and Baidu’s video streaming platform iQiyi lost more than 19 per cent.