President Donald Trump on Dec. 18 signed into law bipartisan legislation that forces foreign companies listed on American exchanges to observe U.S. accounting rules—a move that could see Chinese companies delisted from U.S. exchanges.
Under the law, foreign companies that fail to comply with the Public Company Accounting Oversight Board’s (PCAOB’s) audits for three consecutive years will be subject to delisting from U.S. exchanges. The rule also applies to companies whose shares are traded over the counter.
The measure impacts Chinese companies such as Alibaba Group Holding (NYSE: BABA), JD.com (Nasdaq: JD), and China Mobile (NYSE: CHL).
Companies whose audits cannot be inspected by the board would also have to establish that they are not owned, nor controlled, by a foreign government.
Currently, the Chinese regime blocks overseas regulators, including PCAOB and the Securities and Exchange Commission (SEC), from inspecting full audit reports of publicly traded companies headquartered in mainland China and Hong Kong, citing national security and privacy.
Bipartisan lawmakers welcomed the act, with Rep. Brad Sherman (D-Calif.) describing it as the “most significant piece of investor protection legislation passed in several years.”
“The purpose is not to de-list any company, but to persuade China to allow the audit oversight that U.S. investors need, and the U.S. investors get when investing in U.S. companies or companies in over 50 foreign jurisdictions,” Sherman, co-sponsor of the bill in the House, said in a statement.
Sen. Chris Van Hollen (D-Md.), a co-sponsor of the Senate bill, described the law as the “best way” to “protect American investors from fraudulent businesses seeking to take advantage of them.”