Pompeo urges global stock exchanges to tighten rules for Chinese companies
Thursday, June 4, 2020
Secretary of State Mike Pompeo warned American investors on Thursday against “fraudulent” accounting practices of China-based companies and suggest the Nasdaq’s recent decision to tighten listing rules for such players should be a model for all other exchanges around the world.
“The Trump administration is committed to ensuring that all American businesses and investors can operate on a level playing field with the rest of the world,” he said in a statement. “I applaud Nasdaq for requiring auditing firms to ensure all listed companies comply with international reporting and inspection standards.”
“Nasdaq’s announcement is particularly important given a pattern of fraudulent accounting practices in China-based companies,” Pompeo added. The secretary’s comments represent the latest flashpoint in the relationship between Washington and Beijing at a time of escalating tensions between the world’s two largest economies over trade, the handling of the coronavirus pandemic as well as a spat over Hong Kong.
President Donald Trump on Friday said his administration would begin the process of eliminating special U.S. treatment for Hong Kong to punish China, saying Beijing’s move to impose new national security legislation meant the territory no longer warranted U.S. economic privileges.
Nasdaq took action last month and tightened listing rules, in a bid to curb initial public offerings of Chinese companies closely held by insiders and with opaque accounting.
“American investors should not be subjected to hidden and undue risks associated with companies that do not abide by the same rules as U.S. firms,” Pompeo said Thursday. “Nasdaq’s action should serve as a model for other exchanges in the United States, and around the world.”
The tightening of the listing standards also came after Chinese coffeehouse chain Luckin Coffee, which had a U.S. IPO in early 2019, announced that an internal investigation had shown its chief operating officer and other employees fabricated sales deals.
“The real issue is the lack of transparency and the lack of disclosure to the American investors,” Keith Krach, undersecretary for economic growth, energy and the environment at the U.S. State Department told Reuters on Wednesday.
“No country should be allowed to lie to the American investors to create an unfair advantage especially when operating in American markets,” Krach said, adding that there was a push within the administration to make the U.S. investor community more aware about China’s opaque accounting practices.
The U.S. Securities and Exchange Commission has been locked in a decade-long struggle with the Chinese government to inspect audits of U.S.-listed Chinese companies. The regulator’s accounting oversight arm, the Public Company Accounting Oversight Board (PCAOB), is still unable to access those critical records, it has said.
In April, the head of SEC Jay Clayton warned investors against putting money into Chinese companies due to ongoing problems with those companies’ disclosures.
A senior U.S. official said he hoped the SEC would review a 2013 memorandum of understanding signed with China to allow Chinese companies to not share information if their local laws forbid them from doing so.
“That waiver should probably be reviewed at this point in time as to whether it is still appropriate and if not be rescinded,” he said, adding that the decision was up to the SEC.