Trump to regulators — find ways to crack down on U.S.-listed Chinese companies

President Trump is giving regulators 60 days to come up with strategies for cracking down on U.S.-listed Chinese companies. Trump instructed his presidential working group on financial markets to look at ways to curb listings of Chinese companies that have not abided by U.S. accounting standards.

In a White House memo, Trump says China’s government has prevented the auditing of Chinese companies by the U.S. Public Company Accounting Oversight Board, or PCAOB.

The Trump administration’s efforts aim to prevent listings of Chinese companies like Luckin Coffee. Earlier this year, Luckin revealed nearly half of its 2019 sales transactions were fabricated. The company is listed on Nasdaq, and investors lost billions of dollars.

Trump said, “While China reaps advantages from American markets…the Chinese government has consistently prevented Chinese companies and companies with significant operations in China from abiding by the investor protections that apply to all companies listing on United States stock exchanges.”

Last month, U.S. lawmakers introduced a bill that could bar Chinese companies from listing in the U.S. The Holding Foreign Companies Accountable Act prohibits securities of a company from being listed if the company has failed to comply with PCAOB audits for three years in a row. The bill passed the Senate with unanimous approval.

The president’s working group on financial markets includes U.S. Treasury Secretary Steven Mnuchin; Federal Reserve Chairman Jerome Powell; Jay Clayton, the chairman of the SEC; and Heath Tarbert, chairman of the Commodity Futures Trading Commission.

Yesterday, Secretary of State Mike Pompeo said he supports Nasdaq enforcing stricter requirements for foreign companies conducting IPOs with them, stating, “American investors should not be subjected to hidden and undue risks associated with companies that do not abide by the same rules as U.S. firms. Nasdaq’s action should serve as a model for other exchanges in the United States, and around the world.”

Last month, The China Project spoke with economist Yukon Huang on the possible delisting of Chinese companies from U.S. markets. Huang said, “China’s equity markets…are potentially undervalued. By prohibiting U.S. companies and households and pension funds from investing in China, you’re basically reducing their returns. You’re also increasing risk. They’re missing out on the biggest market. So this kind of action, targeting China, really has a very significant cost in terms of hurting U.S. interests.”

Some Chinese firms say they will seek funds in other markets, and the Hong Kong exchange’s recent decision to relax restrictions could draw Chinese companies closer to home.