It has been a long time for Washington to force Chinese companies to provide the same investment protection that US companies have had for decades, Democratic Reps say. Brad Sherman of California, who is leading efforts in the House of Representatives to force Chinese companies to submit to US securities laws or be barred from raising money in US financial markets.
“The purpose here is not to cancel or unregister; that is to demand that China do what all other countries have done and agree that if their companies want to participate in US capital markets, they agree to live by US capital market rules, “Sherman argued in an interview with MarketWatch. “It̵
See also:A debt crisis in the emerging market could be the next front in the US-China conflict
Sherman introduced a House version of the Foreign Companies Act on Wednesday night, after the bill passed the Republican-controlled Senate earlier in the day with unanimous support.
The bill requires foreign companies to allow the public company’s accounting supervision board to monitor the review of their financial records if they wish to raise money by selling shares or bonds to the American public. All US companies and most foreign entities already work with PCAOB in this way, but Chinese companies do not.
The PCAOB was created by the Sarbanes-Oxley Act of 2002, in response to the collapse of companies such as Enron and WorldCom, after the auditors for these companies failed to disclose financial fraud. PCAOB’s role is to audit the auditors and provide another layer of protection for US investors.
This bill was never intended to free foreign countries, Sherman said, but the financial services industry lobbied to list companies from China, the world’s fastest-growing major economy. As investor demand for Chinese securities increased, the Securities and Exchange Commission came to a compromise with Chinese regulators in 2013, paving the way for a widespread listing of Chinese companies, including stock offerings from technology giants such as Alibaba Group Holding Ltd.
and JD.com Inc.
Do not miss: Congress could kick China listings from US stock exchanges, but it won’t happen overnight, giving Chinese companies breathing room to weigh answers
The 2013 agreement would give PCAOB greater access to Chinese investigation documents, but “China relinquished its commitments,” Sherman said. “Basically, China got tough and we got weak.”
Sherman introduced a similar bill last year, but as the anti-China sentiment has grown in Washington, he said there are now two-party support for measures such as this once supported only by factions skeptical of the US financial industry. With growing anti-China sentiment, he believes his bill will pass before the end of the summer.
Looks:US-China relations are poor and getting worse, with major consequences for trade and investment – and the US presidential election
His hope is to improve the bill through deliberation in the House, to create exceptions for some companies, such as those that are majority-owned and operated in the United States but have small Chinese subsidiaries whose financial records cannot be verified by US regulators.
“Some support for the bill is just about making a statement to China, and some people may not care to wait while I work in any of the technical languages,” he said. “So there is a small possibility that it will go without improvement, there is a certain possibility that it will not pass everything and the most likely outcome is that it will go through the next three months with some improvements.”
However, Sherman emphasized that his hope is not to force Chinese companies from the US financial markets, but to improve the protection of American investors.
“The goal here is to demand that China do what all other countries have done,” he said. “It is to make sure that if they utilize US capital markets they do so in accordance with US capital market rules.”