President Donald Trump signed legislation that could remove Chinese companies from U.S. exchanges if American regulators are not allowed to review their financial audits.
The “Holding Foreign Companies Accountable Act” will require companies to establish that they are not owned or controlled by a foreign government and allow the U.S. Public Accounting Oversight Board to review their financial audits.
Although the legislation applies to companies from any country outside of the U.S., the bill’s measures are clearly intended to target Chinese companies, such as Alibaba Group, Pinduoduo and PetroChina. The companies have a grace period of three years to comply with the requirement before facing the threat of losing access to U.S. stock markets, a key source of capital for the companies.
The bill will almost certainly escalate tensions between China and the U.S. as President Trump prepares to leave office next month. Chinese authorities have long blocked overseas regulators from inspecting local accounting firms, citing national security concerns.
The measure passed the House by unanimous voice vote after passing the Senate in another unanimous vote in May this year. Legislation taking a hard line against China have been receiving bipartisan support this year amid rising tensions on a variety of fronts between the world’s two largest economies.
Before the U.S. President had signed the bill, China’s Foreign Ministry spokeswoman Hua Chunying told reporters, “It will undermine global investors’ confidence in the U.S. capital markets and will undermine the U.S. capital markets’ global standing and hurt U.S. interests.”
In anticipation of the legislation, Chinese companies have pursued secondary listings in Hong Kong as a hedge against the potential ban from trading their shares in the U.S.
Alibaba, NetEase and Yum China have already listed their shares in Hong Kong. The city’s stock exchange will finish the year as the world’s second-largest IPO market after raising a total of $50 billion in new listings, according to data compiled by KPMG.