Implementation of Law by the US Securities and Exchange Commission Poses Problems for Chinese Tech Companies

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A security guard stands outside of the Security and Exchange Commission offices August 14, 2002 in Washington, DC

The U.S. Securities and Exchange Commission (SEC) implemented measures through the Holding Foreign Companies Accountable Act (HFCA) to kick foreign companies off American stock exchanges if they do not comply with U.S. auditing standards.

The HFCA was made into law back in December by the Trump administration. Foreign companies can now be ejected from the NYSE or Nasdaq if they do not comply with auditing standards for longer than three years. Companies also have to prove that they are not owned or controlled by a foreign government or entity. If Chinese Communist Party (CCP) officials are board members of a company, the name of officials must be disclosed. The SEC is still assessing how to implement the full roll out of the HFCA. 

“A lot of investors thought the U.S. and the Biden administration would be more amicable towards China and things would be easier, but this news shows that it is going to be just as tough,” Wealthy Securities Managing Director Louis Tse said.

This news resulted in a major sell-off of U.S.-listed Chinese companies in Hong Kong. Chinese-listed stocks were already facing trouble since the CCP recently announced that they would be enforcing a mandate that would give them access to all the user data that any tech companies collected. Many Chinese tech companies, including giants Tencent Holdings Ltd. and Alibaba Group Holding Ltd., have dived since the recent developments.

Chinese tech companies such as Trencent Holdings Ltd. and Alibaba Group Holdings Ltd have taken a dive due to the new HFCA law.
Chinese tech companies such as Trencent Holdings Ltd. and Alibaba Group Holdings Ltd have taken a dive due to the new HFCA law. (Image: hinglisnotes via Flickr CC PDM 1.0)

It will be difficult if not impossible for Chinese companies to comply with the new accounting standards, because of Chinese law that limits providing such information due to national security concerns. U.S. lawmakers on the other hand feel that it is only fair that foreign companies who make money in the U.S. should have to comply with the same audit standards as U.S. companies in order to prevent fraud.

“It is clearly discriminatory against Chinese companies, it is wanton political suppression of Chinese companies listed in the U.S.,” said Chinese Foreign Minister spokeswoman Hua Chunying. “We urge the U.S. to stop politicizing security regulation, stop discriminating practices against Chinese companies, and provide a fair just and non discriminatory business environment for all businesses listed in the U.S.”

With U.S. and China tensions running high, Russia and China have recently collaborated in condemning Western sanctions, claiming that the sanctions are foreign political interference in their own internal affairs. This comes after sanctions were laid upon Russian officials for the use of a poisoning nerve agent that nearly killed Vladimir Putin’s opposition Alexy Navalny, and on Chinese officials who are involved in the genocide of Uyghurs in Xinjiang. The two nations have also said that they will work together to combat climate change and the pandemic.

China has responded to EU sanctions by sanctioning ten European individuals and four institutions that have “damaged China’s interests” because they “maliciously spread lies and disinformation,” in reference to the widely acknowledged Uyghur genocide which Beijing denies. 

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