The House of Representatives just passed a bill that could delist Chinese companies, like Alibaba Group and JD.com from U.S. exchanges.
That is, unless U.S. regulators are allowed to inspect their financial records within three years.
Unfortunately, at the moment, a good deal of major Chinese companies do not comply with U.S. regulatory standards, including Baidu, China Mobile, PetroChina and the Semiconductor Manufacturing International Corporation, according to the Public Company Accounting Oversight Board, as noted by The New York Times.
With the vote, the Holding Foreign Companies Accountable Act will now go to President Trump, who is expected to sign the bill into law. The U.S. Senate already passed it this summer. In addition, the U.S. SEC has been working on a plan that could put the responsibility on U.S. exchanges to require audit compliance.
However, investors shouldn’t be alarmed by the news immediate-term.
For one, “It is the expectation amongst lawmakers and trade policy watchers that the move will not be considered problematically escalatory and is not likely to trigger a robust or problematic response from China in retaliation for passage of this bill,” said Henrietta Treyz, director of economic policy at Veda Partners, as quoted by MarketWatch. “The expectation there is that President Xi will abstain from making any further moves where the U.S. is concerned (or at least material moves) until President-elect Joe Biden is sworn into office.”
And two, as noted by The New York Times, “China is not that worried if the new legislation takes effect, these people said. The stock markets of Shanghai and Hong Kong are much larger and deeper than they were a generation ago, and valuations for many companies are often higher than in New York. So Chinese companies can raise money at home if the United States makes them unwelcome.”
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