Amidst increasing number of accounting frauds by listed companies, the US recently passed a bill to delist listed firms that do not comply with its auditing norms – a move that experts say is aimed at Chinese companies. Similarly, with the passing of the Hong Kong Security Bill by China, US has pushed for a bill to sanction lenders associated with the officials of that Bill.
Crux of the Matter
Holding Foreign Companies Accountable Act
In March 2020, the US Senate passed a bill titled ‘Holding Foreign Companies Accountable Act’. Under the ambit of this bill, companies are required to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for three years in a row. If a company fails to do so, it will be delisted from all US exchanges. Moreover, public companies are required to disclose holdings by foreign governments in them.
Under the provision of this bill, Chinese companies – even the likes of Alibaba – are afraid of being delisted. Currently, 224 companies listed on US stock exchange are located in countries where PCAOB audits are not allowed – most of these companies happen to be in China. These companies have a combined capitalization of over $1.8 trillion
Many Americans invest in the US stock exchange as part of their retirement savings, and dishonest companies operating on the exchanges put Americans at risk. This legislation protects the interest of hardworking American investors by ensuring that foreign companies traded in America are subject to the same independent audit requirements that apply to American companies.US Government
Chinese Companies Involved In Accounting Fraud
Luckin Coffee, a Chinese coffee-chain with 4,500 stores across China in just 3 years, listed on US exchange NASDAQ in 2019 with a $600mn IPO. It was found doing an accounting fraud. The company showed a higher number of orders per day by jumping order numbers on receipts. Muddy Waters Research, an investigative research and investment company, brought the matter into light. It shares plummeted 80% after it was found of $310 million fraud.
Another Chinese company which is in talks nowadays is GSX Techedu, an ed-tech company. GSX is accused of inflating its revenue by fabricating users. Research report published by Muddy Waters says that only 19% of its users are real. GSX reported a 432% revenue growth in a single year. Citron Research warned the US Securities and Exchange Commission (SEC) in the hope of investigation by authorities.
Sanctions After Hong Kong Security Law
China passed the contentious Hong Kong Security Bill. To put pressure on China, the US has introduced a bill to put sanctions on le ders associated with Chinese officials involved in the Hong Kong Security Bill. With this move, around $1.1 trillion of Chinese banks are at stake.
- The China Hustle is Netflix documentary that depicts systematic securities fraud that continues to occur in the United States, wherein small nondescript Chinese companies with possibly links to the CCCP, the Chinese Communist Party are hyped up and sold by American investment banks to U.S. based investors.
- The Chinese Repository was a periodical published in Canton to inform Protestant missionaries working in Asia about the history and culture of China. It was the brainchild of Elijah Coleman Bridgman, the first American Protestant missionary appointed to China.
- The Boxer Rebellion was an anti-imperialist, anti-foreign, and anti-Christian uprising in China between 1899 and 1901, toward the end of the Qing dynasty. It was initiated by the Militia United in Righteousness, known in English as the Boxers because many of their members had practiced Chinese martial arts, also referred to in the Western world at the time as Chinese Boxing.
- The Singles Day, or Double 11, is a Chinese shopping holiday that originated as an unofficial holiday for bachelors. The holiday has become the largest offline and online shopping day in the world, with Alibaba shoppers exceeding $38.4 billion in purchases last year.