US "Delisting Chinese Listed Companies Ignoring Accounting Standards"

Compliance with US Accounting Standards Required by January 2022
Delisting for Non-Compliance
Enhanced Disclosure for China-Related Investment Funds

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. government has decided to delist Chinese companies listed on the U.S. stock market since January 2022 for ignoring U.S. accounting standards.

On the 6th (local time), the U.S. Treasury Department announced that it had conveyed to President Donald Trump the opinion that Chinese companies listed on the U.S. stock market but not disclosing their audit data to U.S. regulatory authorities should have their listings revoked.

This recommendation follows President Trump's directive in early June to establish a task force, including Treasury Secretary Steven Mnuchin and Securities and Exchange Commission (SEC) Chairman Jay Clayton, to devise measures to protect U.S. investors from Chinese companies not subject to U.S. accounting regulations.

According to the task force recommendation released by the U.S. Treasury, Chinese companies listed on the New York Stock Exchange (NYSE) and Nasdaq must disclose their audit data to the Public Company Accounting Oversight Board (PCAOB), the U.S. accounting regulatory authority, by January 2022. Companies planning an initial public offering (IPO) on the U.S. stock market must also comply with this guideline. Failure to comply will result in delisting.

Steven Mnuchin, head of the task force and Treasury Secretary, explained, "This recommendation aims to protect U.S. investors and apply fair conditions to companies listed on the U.S. stock market."

Earlier, the U.S. Senate unanimously passed a bill in May this year that prohibits Chinese companies from listing on the U.S. stock market if they do not comply with U.S. accounting audits and regulations.

Bloomberg reported that while the U.S. government agreed that delisting should ultimately occur if U.S. accounting standards are not followed, the specific procedures for enforcement have not yet been finalized.

The recommendation also calls for strengthening supervisory standards for funds investing in non-cooperative jurisdictions in tax matters, such as China. This measure is interpreted as a response to controversies over U.S. government employee funds investing in Chinese stocks.

Accounting fraud issues among Chinese companies listed on the U.S. stock market have been ongoing, but the recent U.S.-China tensions are seen as a factor prompting President Trump to take a firm stance on this issue.

The U.S. holds the position that Chinese companies are raising funds in the U.S. with fraudulent data, harming U.S. investors. Recently, the delisting of Luckin Coffee, listed on Nasdaq, due to large-scale accounting fraud, heightened awareness of accounting fraud among Chinese companies. When the issue surfaced in the U.S., Chinese authorities eventually announced their intention to punish Luckin Coffee's accounting fraud, but the damage was borne entirely by U.S. investors.

The U.S. State Department plans to soon terminate the "Cooperation Agreement on Enforcement," a memorandum of understanding signed in 2013 between the U.S. and China regarding audit procedures for Chinese companies. This agreement stipulated that if a Chinese company required investigation, the PCAOB would receive audit documents from the corresponding Chinese authority, the China Securities Regulatory Commission (CSRC). While this agreement facilitated Chinese companies' entry into the U.S. stock market, it has been criticized for the lack of transparency of Chinese companies.

This content was produced with the assistance of AI translation services.