Around 250 Chinese companies could be delisted ‘as early as 2024’: SEC chairman

In early 2020, an accounting scandal at Luckin Coffee blindsided its American shareholders as the coffeehouse chain’s share price fell to the bottom.

Luckin Coffee highlighted a problem: US investors had little knowledge of Chinese corporate finances while stocks traded freely on US stock exchanges. The incident has raised questions about whether other crises involving US-listed Chinese companies lurk around the corner.

Congress moved to stop the next Luckin by passing the Foreign Company Liability Act This year. The law gave Chinese companies an ultimatum: either be delisted or follow the accounting transparency provisions that other foreign companies listed in the United States already follow.

Luckin Coffee joined the Nasdaq with an IPO in 2019 just a year before it became embroiled in an accounting scandal. (REUTERS/Brendan McDermid)

Now the matter is in the hands of regulators and Securities and Exchange Commission Chairman Gary Gensler, who, in a new interview for Influencers with Andy Serwer this week, offered an update.

“We had good discussions with our Chinese counterparts,” Gensler said of the Public Enterprise Accounting Supervisory Board (PCAOB), the congressional nonprofit corporation he oversees. “But it really depends on the officials in China.”

If China changes course, he says, “then there is a way forward.” But otherwise, “Congress has spoken: about 250 Chinese companies”, should suspend their activities here “potentially as early as 2024”.

“Check the auditors”

In addition to accounting requirements, the 2020 law also requires companies to disclose whether a foreign government owns or controls them.

A group known as the United States-China Economic and Security Review Commission has compiled a list of 248 Chinese companies now listed on the three largest US stock exchanges – including massive companies like Alibaba (BABA), Baidu (BIDU) and (JD).

What needs to happen, say Gensler and other officials, is that China allows the PCAOB to look inside Chinese listeners. Gensler described it as “kind of a simple idea – audit the listeners”.

“There are some basics that if you want to register in the United States, you have to comply with our investor protection rules,” Gensler says.

The law essentially treats foreign companies listed in the United States the same way it treats American companies. “We just want Chinese companies to play by the same rules as everyone else,” Sen. Chris Van Hollen (D-MD), one of the bill’s main sponsors, explained to Yahoo Finance after the bill passed the Senate.

The most recent law updated the benchmark Sarbanes-Oxley Act of 2002who created the PCAOB and established the set of rules that China has largely avoided.

The 2020 law specified how long Chinese companies could avoid the rules before delisting was on the table.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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