Last week, the United States Senate passed a bill that threatened to delist companies on U.S, exchanges that did not comply with regulatory audits. China has decried the bill as "directly targeting Chinese firms" due to many Chinese firms not complying with regulatory audits.
The "Holding Foreign Companies Accountable Act," sponsored by senators John Kennedy and Chris Van Hollen, was introduced in March of last year. The HFCAA passed unanimously last week and is being passed to the House of Representatives for consideration, where it will then land on President Donald Trump's desk for approval. According to Skopos Labs, the bill has a 56% chance of becoming law.
The bill has become the subject of scrutiny by China's securities regulator, which rebuked the bill as being "directly targeted at China" and claiming that the legislation "politicizes securities regulation." While the United States and China have drawn back tariff exchanges, tensions have not eased by any measure, especially over contentious topics such as the conduct of Chinese companies such as ByteDance, whose popular product TikTok is once again receiving scrutiny for potential COPPA violations, and over Hong Kong, where China's encroaching presence has sent thousands of protestors into the streets.
The bill requires companies to comply with the Public Company Accounting Oversight Board and subject themselves to regulatory audits; companies that are out of compliance for three years or more consecutively will be delisted. The bill also requires companies to disclose whether they are controlled or owned, at least in part by foreign governments. Given the tendency of Chinese companies to resist audits and the substantial control the Chinese government asserts over firms, the Chinese government's reaction to the bill is hardly unprecedented.
What remains to be seen, however, is if Chinese firms will either adapt to the new rules or leave U.S. exchanges entirely. Chinese firms looking for more welcoming markets will likely turn to exchanges closer to home, such as Hong Kong. Alibaba (NYSE: BABA) recently received a listing in Hong Kong, and if the HFCAA passes, it may be joined by other Chinese firms that are unwilling to adjust to meet the requirements of the bill.