Congress should protect U.S. investors from risky Chinese listings - commission
14 November 2019, 12: 47
The U.S. Congress should compel Chinese companies to disclose their ties to the Chinese government and prevent them from listing on U.S. stock exchanges unless they meet U.S. audit requirements, a congressional advisory body said on Thursday.
The U.S.-China Economic and Security Review Commission (USCC) warned in its annual report that lack of transparency and oversight surrounding Chinese listings and other investment instruments exposed U.S. investors to heightened risks of insider trading, fraud or possible default.
"The goal is not to slam a door. It is rather to ensure compliance in a way that protects all investors," said Robin Cleveland, vice chairman of the commission. "We just want transparency."
The issue has taken on new urgency, she said, given what she called an alarming increase in China's debt levels, ranging from household mortgage debt to $3 trillion in foreign debt, as well as falsified and vague data about the Chinese economy.
Washington and Beijing are locked in a 16-month war of tit-for-tat tariffs that have roiled markets and dragged global growth to its lowest level since the 2007-2008 financial crisis.
The commission's recommendations are part of a recalibration of U.S.-China ties that began under former President Barack Obama, but which has gained momentum under President Donald Trump. While concerns have traditionally focused on trade and technology issues, policymakers have widened their scrutiny to include Chinese companies' access to U.S. capital markets.
The commission's recommendations are non-binding, but often lay the groundwork for legislation.
Major U.S. stock indices slipped on news in September that the Trump administration was considering delisting Chinese companies from U.S. stock exchanges, although a chief Trump adviser later said that step was "not on the table".
Other legislative efforts, though, are already underway. A group of U.S. lawmakers led by Republican Senator Marco Rubio this month introduced a bill that would block a federal retirement fund from investing in Chinese stocks, an issue raised in earlier commission reports.
The USCC urged Congress to enact legislation that would:
- ban Chinese companies from issuing securities on U.S. exchanges if they did not provide timely access to audits about the company's operations in China;
- require companies seeking U.S. initial public offerings to disclose any Chinese government support, links to the Communist Party, and details about company officers who had formerly held Communist Party posts;
- require the U.S. Treasury, Commerce Department and Securities and Exchange Commission to compile a report on U.S. investors' ownership of Chinese bonds and debt instruments.