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Chinese companies will not be welcome to list unless they are willing to go in for full audit by a US government agency. Image Credit: Bloomberg

Washington: The US Senate overwhelmingly approved legislation that could lead to Chinese companies such as Alibaba Group Holding Ltd. and Baidu Inc. being barred from listing on US stock exchanges amid increasingly tense relations between the world's two largest economies.

The bill was approved by unanimous consent and would require companies to certify that they are not under the control of a foreign government.

If a company can't show that it is not under such control - or the Public Company Accounting Oversight Board isn't able to audit the company for three consecutive years to determine that it is not under the control of a foreign government - the company's securities would be banned from the exchanges.

"I do not want to get into a new Cold War," Senator John Kennedy said on the Senate floor, adding that he wants "China to play by the rules."

Support from both sides

The legislation is another example of the rising bipartisan pushback against China that had been building over trade and other issues. It has been amplified especially by Republicans as President Donald Trump has sought to blame China as the main culprit in the coronavirus pandemic.

"Publicly listed companies should all be held to the same standards, and this bill makes common sense changes to level the playing field and give investors the transparency they need to make informed decisions," Chris Van Hollen said. "I'm proud that we were able to pass it today with overwhelming bipartisan support, and I urge our House colleagues to act quickly."

Tightening up on China's US exposures

GOP lawmakers have in recent weeks unleashed a torrent of legislation aimed at punishing China for not being more forthcoming with information or proactive in restricting travel as the coronavirus began to spread from the Wuhan province, where it was first detected.

But the president's focus on blaming China for the pandemic has threatened what had been a strong bipartisan consensus that the US needs to get tougher on the country. 

Kennedy told Fox Business on Tuesday that the bill would apply to US exchanges such as NASDAQ and the New York Stock Exchange. "I would not turn my back on the Chinese Communist Party if they were two days dead," Kennedy said. "They cheat. And I've got a bill to stop them from cheating."

China's access issues

At issue is China's longstanding refusal to allow the PCAOB to examine audits of firms whose shares trade on the New York Stock Exchange, Nasdaq and other US platforms. The inspections by the little-known agency, which Congress stood up in 2002 in response to the massive Enron Corp. accounting scandal, are meant to prevent fraud and wrongdoing that could wipe out shareholders.

Since then China and the US have been at odds on the issue even as companies including Alibaba and Baidu have raised billions of dollars selling shares in American markets. The long-simmering feud came to the forefront last year as Washington and Beijing clashed over broader trade and economic issues, and some in the White House have been urging Trump to take a harder line on the audit inspections.

Last week, Trump said in an interview on Fox Business that he's "looking at" Chinese companies that trade on a the NYSE and Nasdaq exchanges but do not follow US accounting rules. Still, he said that cracking down could backfire and simply result in the firms moving to exchanges in London or Hong Kong.

While not technically part of the government, the PCAOB is overseen by the Securities and Exchange Commission. The ability to inspect audits of Chinese firms that list in the US is certain to come up at a roundtable that the SEC is holding on July 9 on risks of investing in China and other emerging markets.


Number of US listed companies in countries where there are obstacles to PCAOB inspections of the kind the new legislation mandates.