Chinese company listings in New York face heat from Senate bill

(Bloomberg) – Shell companies that Chinese companies often use to list shares in New York would face increased scrutiny from U.S. regulators under a new bill in the U.S. Senate.

Rick Scott, a Republican from Florida, and Chris Van Hollen, a Democrat from Maryland, said on Thursday they had introduced legislation to crack down on so-called variable interest entities, or VIEs, which Chinese companies commonly use for listings. Americans. The bipartisan plan, which is expected to leapfrog several hurdles to become law, is the latest move in Washington to pressure China-based companies to disclose more information to U.S. investors.

Securities and Exchange Commission Chairman Gary Gensler has repeatedly raised concerns about VIEs. He said people in the United States who think they’re investing in a Chinese company by buying shares on the New York Stock Exchange or Nasdaq markets might not realize they’re actually investing in shell companies, who are often based in the Caymans. islands and are content to maintain service agreements with companies based in China.

A representative for the SEC declined to comment on the legislation. According to the plan, which was announced in a statement from Scott’s office, the SEC should begin requiring:

  • Stock symbols in the United States to make it clear to investors that they correspond to VIEs.
  • Brokers should provide warning labels about legal obstacles investors might face in getting money back when investing in shell companies.

In addition to pushing for more scrutiny of VIEs, U.S. lawmakers and regulators have pushed for Beijing to allow U.S. inspectors to review audit working papers from companies trading in New York.

In what was billed as a major breakthrough, officials in Beijing and Washington said Aug. 26 they had reached a preliminary agreement allowing U.S. officials to review audit documents from Chinese companies that make trade in the United States – a first step in avoiding debarment. of approximately 200 New York Stock Exchange companies.

(Updates with SEC declining to comment in fourth paragraph.)

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Norman D. Briggs