US Secretary of State Mike Pompeo on Thursday warned American investors against fraudulent accounting practices at China-based companies and said that the NASDAQ’s recent decision to tighten listing rules for such players should be “a model” for exchanges worldwide.
US President Donald Trump on Thursday issued a memorandum calling for recommendations to be issued within 60 days to protect US investors from what he said was China’s failure to allow audits of US-listed Chinese companies.
“We must take firm, orderly action to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets,” Trump wrote.
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“American investors should not be subjected to hidden and undue risks associated with companies that do not abide by the same rules as US firms,” Pompeo said in his statement. “NASDAQ’s action should serve as a model for other exchanges in the United States and around the world.”
“I applaud NASDAQ for requiring auditing firms to ensure all listed companies comply with international reporting and inspection standards,” Pompeo said.
NASDAQ Inc last month tightened listing rules in a bid to curb initial public offerings of Chinese companies closely held by insiders and with opaque accounting.
NASDAQ chief executive Adena Friedman on Thursday said that addressing the overseas accounting issues is a matter for the US Securities and Exchange Commission (SEC).
The exchange’s tightening of listing standards came after Chinese coffeehouse chain Luckin Coffee Inc, which had a US initial public offering early last year, announced that an internal investigation showed its chief operating officer and other employees fabricated sales deals.
Trump last week said that his administration would begin the process of eliminating special US treatment for Hong Kong, saying that Beijing’s move to impose new national security legislation meant the territory no longer warranted US economic privileges.
He also said he was instructing a presidential working group to study the differing practices of Chinese companies listed on US financial markets, with the goal of protecting American investors.
“The real issue is the lack of transparency and the lack of disclosure to the American investors,” US Under Secretary For Economic Growth, Energy and the Environment Keith Krach told reporters 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.
Many US-listed Chinese firms will likely list on the Hong Kong exchange this year, in part because of US political pressure, the head of the Hong Kong exchange said on Thursday.
The SEC has been engaged in a decade-long struggle with the Chinese government to inspect audits of Chinese companies listed in the US.
In April, SEC Chairman Jay Clayton warned investors against putting money into Chinese companies due to problems with disclosures.
A senior US official said he hoped that the SEC would review a memorandum of understanding signed with China in 2013, allowing Chinese companies to withhold information if their local laws forbid them from sharing it.
“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.
In Beijing yesterday, China said that forcing Chinese firms to retreat from US stock exchanges would severely harm US interests.
In a briefing, Chinese Ministry of Foreign Affairs spokesman Geng Shuang (耿爽) also accused Washington of making hasty generalizations about China-based companies’ accounting practices.
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