U.S. President Donald Trump signed the Foreign Companies Accountability Act on Friday (18), unless Chinese companies undergo accounting audits reviewed by U.S. regulators, Chinese companies listed on the U.S. stock exchange off the market, a move that could affect Alibaba, Baidu and other Chinese corporate giants, and further exacerbate tensions between the two countries.
The Foreign Companies Accountability Act (Holding ForeignCompanies Accountable Act) passed easily in the Senate in May and received bipartisan support in the House of Representatives earlier this month, although the scope of the bill applies to companies outside the U.S., but the sponsors say the bill is essentially aimed at China.
Chinese companies have used the U.S. capital markets and U.S. dollar financing for years as one of the key sources of capital to grow their businesses, and while the bill’s downgrade provisions would be phased in with fines first imposed for three consecutive years of non-compliance, it would still do real damage to Chinese companies that do not meet audit standards.
Previous U.S. policy has allowed China to ignore the laws that U.S. businesses are required to follow, which is very dangerous,” said Senator John Kennedy, Republican of Louisiana, in a statement.
Sen. Chris Van Hollen, D-Maryland, one of the bill’s sponsors, said that in addition to requiring Chinese companies to allow U.S. regulators to conduct accounting audits, they would also be required to disclose whether they are controlled by the Chinese government.
In a statement, Van Hollen said the de-listing bill would protect investors who “invest in what appear to be legitimate Chinese companies that are not actually held to the same standards as other publicly traded companies,” to ensure that all companies in the U.S. securities market are held to the same standards.
After the bill is signed, implementation will largely depend on the Securities and Exchange Commission (SEC), whose chairman Jay Clayton said Friday that he will make sure the SEC’s plan is in line with the bill Trump just signed.
The new law means a watershed moment in the long-running controversy over Chinese companies in the U.S. China has long refused to allow the U.S. Public Company Accounting Oversight Board (PCAOB) to conduct accounting audits of Chinese companies listed in the U.S. The PCAOB was established in the wake of the Enron case to prevent fraud and wrongdoing by U.S. companies.
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