The head of the U.S. Securities and Exchange Commission is warning China — either the country enables its companies raising money in the U.S. to provide more information to investors…or get out of town.
In an interview earlier this week, SEC Chairman Gary Gensler vowed to make Chinese companies comply with financial transparency rules by 2024, or delist them from U.S. exchanges. (Story continues below.)
“The path is clear. The clock is ticking,” Gensler said.
At present, China does not allow foreign regulators to perform audits of Chinese companies, even when these companies are listed on foreign exchanges.
Currently, there are 281 Chinese companies listed in the U.S. as well as another 110 based in Hong Kong, which also doesn’t allow American regulators to inspect financial data. These companies have collectively raised $2 trillion from U.S. investors, including companies like Alibaba Group Holding Ltd. and Baidu Inc.
As such, these companies are at risk of being delisted from the New York Stock Exchange and Nasdaq as soon as 2024.
Chinese regulatory secrecy puts foreign investors at significant financial risk.
Without any regulatory oversight, there is no way for investors to know whether the companies are truthful in their financial statements.
That is why in June, the SEC suspended all initial public offerings from Chinese companies, citing regulatory and political risks for investors.
China Doesn’t Share Data
There is little chance that China will comply with the SEC requirements.
China is fiercely protective against foreign entities holding data on Chinese companies and citizens. It’s no accident that Google, Facebook, Uber are not allowed to operate in China.
This was also the primary reason for the crackdown against U.S.-listed Chinese tech firms. China was concerned
“In certain sectors, like technology and the internet, the government of China doesn’t actually allow ownership and investment in Chinese companies from people outside of China,” SEC Chair Gary Gensler explained.
The Chinese government has already demonstrated that it puts political priorities ahead of economic concerns. Investors in Chinese big tech should carefully assess all risks involved in owning these stocks.