The US Securities and Exchange Commission (SEC) is pushing ahead with a plan that threatens to kick Chinese companies off US stock exchanges, setting up a late clash between Washington and Beijing as the Trump administration winds down.
By the end of this year, the SEC intends to propose a regulation that would lead to the delisting of companies for not complying with US auditing rules, according to people familiar with the matter.
Agency officials have been moving quickly on a rule since August, when the President’s Working Group on Financial Markets — a regulatory council whose members include SEC Chairman Jay Clayton and Treasury Secretary Steven Mnuchin — urged the regulator to pass restrictions that could take effect as soon as 2022, said the people who asked not to
be named in discussing private deliberations.
The move is unusual because most agencies stop issuing major new policies after a presidential election, especially when a new party is taking power. It’s unlikely the rule will be finalised before President Donald Trump’s term ends on January 20. Clayton, who plans to step down by the end of the year, will also be gone before any regulation is finished. That would leave completing it to an SEC chief picked by President-elect Joe Biden.
At issue is the problem that has vexed US regulators for more than a decade: China’s refusal to let inspectors from the Public Company Accounting Oversight Board review audits of Alibaba Group Holding Ltd, Baidu Inc and other firms that trade on American markets. It has gained added urgency due to rising tensions between the two countries and following this year’s high-profile accounting scandal at Luckin Coffee Inc.
By pushing through a vote, Clayton would force the SEC’s Republican and Democratic commissioners — all of whom have years left on their terms — to go on record in stating whether they support tougher rules for Chinese companies.
Plus, unlike many policies in this era of heightened partisanship, cracking down on China appeals to both Republicans and Democrats on Capitol Hill. In May, the US Senate approved a bill without opposition that directs the SEC to start the process of delisting Chinese companies whose audits aren’t inspected by American regulators. All of these factors could put pressure on Clayton’s Democratic successor.
The SEC declined to comment on the rulemaking plan.
Fang Xinghai, the vice chairman of the China Securities Regulatory Commission, sounded a positive note on resolving the issue at a panel discussion, saying it’s important to ensure that Chinese companies have access to international capital markets.
At a briefing, Foreign Ministry spokesman Zhao Lijian said China believes that it’s “important to improve” the qualities of the securities market and regulators and that cross-border regulatory mechanisms are “essential.” He added that China has in the past reached out to the SEC and other authorities and has never prevented any auditing because it’s committed to building a sound environment.
Chinese stock listings have attracted Trump’s attention, as he ratchets up his attacks on China over the coronavirus pandemic and other grievances.
Last week, he signed an order barring American investments in Chinese firms owned or controlled by the military.