Sec. 133. Review of Chinese companies on United States capital markets
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Beginning in the 1990s, a wave of Chinese companies sought to raise capital and list shares on American stock markets. In 2011 and 2012, more than 100 Chinese firms were delisted from the New York Stock Exchange as a result of fraud, accounting scandals, and other corporate governance failures. Following extensive diplomatic efforts by the United States Government, the Public Company Accounting Oversight Board (PCAOB) signed a memorandum of understanding with the China Securities Regulatory Commission and the China Ministry of Finance for the production and exchange of audit documents.
Despite signing the agreement, Chinese regulators continue to hinder the PCAOB’s access to relevant documents that are necessary for the PCAOB to carry out its enforcement duties. In August 2020, the Department of State sent a letter to American universities warning about national security implications related to Chinese stock holdings. In December 2020, Congress passed and the President signed the Holding Foreign Companies Accountable Act ( Public Law 116–222 ), which requires foreign companies listed on American stock markets to comply with PCAOB auditing rules within three years.
Under the legislation, issuers not in compliance within three years will be delisted. Not later than 180 days after the date of the enactment of this Act, the Secretary of State, in coordination with the Secretary of the Treasury, shall submit to the appropriate congressional committees a report that describes the costs and benefits to the United States posed by the presence of companies incorporated in the People’s Republic of China
(PRC)that are listed on American stock exchanges or traded over the counter, in the form of American depository receipts. The report shall— identify companies incorporated in the PRC that— are listed or traded on one or several stock exchanges within the United States, including over-the-counter market and A Shares added to indexes and exchange-traded funds out of mainland exchanges in the PRC; and based on the factors for consideration described in paragraph (3), have knowingly and materially contributed to— activities that undermine United States national security; serious abuses of internationally recognized human rights; or a substantially increased financial risk exposure for United States-based investors; describe the activities of the companies identified pursuant to subparagraph (A), and their implications for the United States; and develop policy recommendations for the United States Government, State governments, United States financial institutions, United States equity and debt exchanges, and other relevant stakeholders to address the risks posed by the presence in United States capital markets of the companies identified pursuant to subparagraph (A). In completing the report under paragraph (1), the President shall consider whether a company should be identified pursuant to paragraph (2)(A) because the company has— materially contributed to the development or manufacture, or sold or facilitated procurement by the PLA, of lethal military equipment or component parts of such equipment; contributed to the construction and militarization of features in the South China Sea; been sanctioned by the United States or has been determined to have conducted business with sanctioned entities; engaged in an act or a series of acts of intellectual property theft; engaged in corporate or economic espionage; contributed to the proliferation of nuclear or missile technology in violation of United Nations Security Council resolutions or United States sanctions; contributed to the repression of religious and ethnic minorities within the PRC, including in Xinjiang Uyghur Autonomous Region or Tibet Autonomous Region; contributed to the development of technologies that enable censorship directed or directly supported by the Government of the PRC; or contributed to other activities or behavior determined to be relevant by the President. In completing the report under paragraph (1), the President shall weigh the national security implications and consider the following factors identified pursuant to paragraph
(3)(except that such report should exclude from its analysis the delisting or potential delisting of companies from United States markets as a result of failing to retain a Public Company Accounting Oversight Board-registered public accounting firm as required by section 104 of the Sarbanes-Oxley Act of 2002 ( 15 U.S.C. 7214 )): The possibility that banning or delisting companies from United States markets could lead to an outflow of companies to list in the PRC. The possibility that banning or delisting companies from United States markets could impact the status of the United States as the world’s leading capital markets center, particularly vis-à-vis the PRC. The impact on American foreign policy and national security if United States leadership in capital markets was weakened vis-à-vis the PRC. The report required under subsection
(b)shall be submitted in unclassified form. The report required under subsection
(b)shall be made accessible to the public online through relevant United States Government websites.
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Sec. 133
Review of Chinese companies on United States capital markets
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