Senate passes bill to delist PRC firms

Daniel Fowler
May 23, 2020

US-listed Chinese companies have come under scrutiny after Luckin Coffee revealed that an internal investigation found $310 million of its sales previous year between April and December were "fabricated".

If a company can't show that it is not under such control or the Public Company Accounting Oversight Board, or PCAOB, isn't able to audit the company for three consecutive years to determine that it is not under the control of a foreign government, the company's securities would be banned from the exchanges.

The United States Senate passed a bill Wednesday that seeks to prohibit American investors from dumping money into some Chinese companies.

There were 172 Chinese companies listed on USA exchanges that were valued at more than $1 trillion as of September past year, according to the U.S.

"The Senate bill, if it is written into law, would require Chinese companies to establish that they aren't owned or controlled by a foreign government", the report noted further.

In past the U.S. legislators have raised alarms over billions of dollars being injected into some of China's largest corporations.

House Speaker Nancy Pelosi (D-Calif.) said on Thursday that she will ask some House committees to review a bipartisan bill passed by the Senate which could delist some Chinese companies from the US exchanges.

A similar bill has been introduced in the House but has not made it out of the House Committee on Financial Service.

It comes as US-China tensions increase over the virus pandemic and after the Luckin Coffee accounting scandal.

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Recently, the Thrift Saving Plan, a retirement fund for US federal workers and military members, postponed plans to invest in some Chinese stocks under pressure from Donald Trump's White House.

Nasdaq on Tuesday informed Luckin Coffee it plans to delist the company, a month after the Chinese beverage brand said an internal investigation found that its chief operating officer had falsified 2019 sales by about $310 million.

Nasdaq recently pressured Luckin Coffee (LK), a Chinese coffee chain engulfed in widespread accounting fraud, to delist.

Kennedy said the aim isn't to start a rift with China.

For Chinese ADR firms with small market caps, Pang added, the best idea would be a voluntary delisting from the USA exchange before a primary listing in Hong Kong.

While not technically part of the government, the PCAOB is overseen by the Securities and Exchange Commission. Rubio applauded the passage of the Kennedy-Van Hollen bill and said it incorporated aspects of a similar bill he introduced previous year.

"For too long, Chinese companies have disregarded USA reporting standards, misleading our investors".

The bill was passed amidst escalating tensions between the United States and China over trade tariffs, handling of the COVID-19 outbreak, cross-border investments and a perceived disregard of USA financial disclosure standards.

The bill was sponsored by senators Chris Von Hallen and John Kennedy, according to Reuters.

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