From the Wall Street Journal:
U.S. securities regulators have started a countdown that will force many Chinese companies to leave American stock exchanges, after a long impasse between Washington and Beijing over access to the companies’ audit records.
The action will accelerate the decoupling of the world’s two largest economies and affect investors that own securities in more than 200 U.S.-listed Chinese companies with a combined market value of roughly $2 trillion.
In late 2020, then-President Donald Trump signed a law that bans the trading of securities in foreign companies whose audit working papers can’t be inspected by U.S. regulators for three years in a row.
The delisting requirement is part of the Holding Foreign Companies Accountable Act. Beijing has argued that requiring disclosure of data-heavy tech companies, disclosures that could include emails between company officials and government officials (often a blurred line in China), would endanger national security.
Chinese officials have previously refused to allow disclosure of audit information for two major Chinese companies: Alibaba and Baidu. Both are listed on US exchanges.
Chinese officials insist that their US counterparts should accept at face-value the work of Chinese auditors as if done by US auditors themselves. Unsurprisingly, US officials have not been receptive to the notion.
Not helping the situation: the revelation that Luckin Coffee, a Chinese upstart competitor to Starbucks, had fabricated its financial data. Chinese officials and Luckin only took action after US-based Muddy Waters Research published a reporting alleging massive fraud.
Luckin’s investors have included well-connected firms, including one with firm connections to current and former senior Chinese government officials. Wang Qishan, current Vice President of the People’s Republic of China, helped found one of those investment firms. Luckin founder and ex-chairman Charles Zhengyao Lu (who was chairman at the time of the fraud discovery) is a former local government official.