The company assured investors that the shares would be convertible into freely tradable shares on another stock exchange.Īnother area where US and Chinese regulators are increasing scrutiny is the variable interest entity (VIE). A few days later, DiDi announced that it was delisting from the NYSE, planning to relist in Hong Kong. Shareholders sued on the grounds that the company had failed to disclose the discussions it was having with Chinese authorities. Shortly after Chinese ride-hailing app DiDi listed on the NYSE, China's cybersecurity regulator ordered the company's app removed from app stores, citing issues of data security.
Once listed, these firms are subjected to national security and cybersecurity reviews. Additionally, companies in industries which are normally banned from foreign investment must seek a waiver before listing. The Cyberspace Administration of China requires companies which hold data on more than one million users to seek approval for overseas listing. listing of Chinese firms, particularly technology companies. Currently, there are state-owned and state-controlled companies listed on all three major, U.S. Additionally, the act requires companies to disclose if they are owned or controlled by a foreign government. The HFCAA specifically addresses disclosure regarding foreign jurisdictions that prevent inspections. The company was delisted and later declared bankruptcy. Trading was halted, and the firm lost 83% of its value. In April 2020, the Chinese coffee chain fired its CEO after discovering that he had fabricated $310 million in sales. The issue came to a head in 2020 because of NYSE-listed Chinese coffee brand, Luckin Coffee. SEC Chairman Gary Gensler reported in December, 2021 that, although more than 50 foreign jurisdictions have cooperated with the PCAOB, neither Hong Kong nor the PRC has.įor more than a decade, the inability to verify the audits of Chinese firms has plagued U.S. Chinese regulators have frequently refused to allow Chinese companies to be audited. While Chinese authorities could, theoretically provide this permission.
The companies must also obtain government permission before providing foreign parties with documents or materials relating to capital markets activities. The problem is that the Chinese regulators do not allow the audits to be sent to the PCAOB.Ĭhinese law requires companies to obtain the permission of the government before allowing foreign securities regulators to inspect their activities. The Chinese side claims that Chinese firms are in compliance, as they are audited by the big four accounting firms. The Public Company Accounting Oversight Board ( PCAOB) was created by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies, providing external and independent oversight of auditors. exchanges that refuse to have their audits verified. Promulgated in compliance with the Holding Foreign Companies Accountable Act (HFCAA), the rules are meant to counter Chinese companies listed on U.S. The shares of delisted firms could continue to trade in the U.S., over the counter. The earliest companies might be delisted would be 2024.
10, under which companies that fail to comply with audits for three consecutive years will incur a five-year trading ban. The Securities and Exchange Commission has finalized new rules, effective Jan.
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