US-listed Chinese companies must disclose to investors any risk of government interference

US policymakers worry that Chinese firms are systematically flouting US rules
A Top SEC official said on Monday that US-listed Chinese companies must disclose risks related to China’s regulatory environment

Regulation

Reuters

Published: 10:22am, 27 Jul 2021

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Chinese companies listed on US stock exchanges must disclose the risks of the Chinese government interfering in their businesses as part of their regular reporting obligations, a top US Securities and Exchange Commission (SEC) official said on Monday.

Democratic commissioner Allison Lee’s comments are the first by an SEC official since Chinese regulators launched a massive cyber probe of ride-hailing giant Didi last week, just days after its US$4.4 billion (28,5 billion yuan) New York listing, wiping 25 per cent off its share price.

Some policymakers worry Chinese firms are systematically flouting US rules, which require public companies to disclose to investors a range of potential risks to their businesses.

Chinese regulators suspect Didi of deceit in US listing, sources say

“Public companies must disclose significant risks which, for China-based issuers, may sometimes involve risks related to the regulatory environment and potential actions by the Chinese government,” Lee, who served as acting head of the SEC from late January to mid-April, told Reuters in an interview.

The Wall Street Journal has reported that Didi had been warned by regulators to delay its initial public offering and to address its cybersecurity. Didi has said it had no knowledge of the investigation before its listing.

Lee declined to comment on whether the SEC had opened a probe of Didi for potential disclosure failings.

“We should always be focused on ensuring investors are fully informed of material risks, such as the risks we’ve seen recently related to China,” Lee said.

An SEC spokesperson said that as a matter of policy, the SEC conducts investigations on a confidential basis and does not acknowledge the existence or non-existence of any investigation unless or until charges are filed.

Over the past decade, Washington policymakers have focused on getting US-listed Chinese companies to comply with US Public Company Accounting Oversight Board rules. Last year Congress passed a law that would kick Chinese companies off US exchanges unless they adhere to American auditing standards.

07:30

Why China is tightening control over cybersecurity

But regulators have not generally focused on Chinese company disclosure issues. Some lawmakers are calling for the SEC to devote more resources to the issue.

“US regulators must insure that American investors and workers are protected from the sort of non-market behaviour that is leaving American investors scorched,” Senator Bill Hagerty, who sits on the Senate Banking Committee, said in a statement to Reuters.

“This includes enforcing compliance with Public Company Accounting Oversight Board audit requirements, as well as investigating whether there have been sufficient disclosures about the serious potential investment risks associated with such a centrally-controlled economy,” Hagerty said.

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