Legislation would block unaudited and state-influenced foreign companies from US capital markets
Washington. The Coalition for a Prosperous America (CPA) today endorsed the introduction of the EQUITABLE Act (“Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges”). The bill, co-sponsored by Sens. Marco Rubio (R-FL), Bob Menendez (D-NJ), Tom Cotton (R-AR) and Kirsten Gillibrand (D-NY) would block certain companies based in China and Hong Kong from accessing US capital markets.
Said CPA Chair Dan DiMicco, “We congratulate Sen. Rubio and his colleagues for their forward-thinking approach to protecting America’s economic security. Unscrupulous Chinese companies have repeatedly gained access to US capital markets, even as China engages in intellectual property theft and other predatory practices. US investors shouldn’t unwittingly provide capital for firms that hide behind China’s wall of secrecy and its non-disclosure of essential financial information.”
As of 2019, Chinese companies listed in US markets had a market capitalization of approximately $1.2 trillion. However, Chinese government policies can limit foreign access to the audit reports of many of these companies, including at least 11 state-owned enterprises. As a result, Chinese companies listed on American stock exchanges are often shielded from the full oversight of US financial regulators. US investors may unknowingly invest in entities that have not met the standards they expect from companies listed in US financial markets.
Michael Stumo, CEO of the CPA, said, “There are numerous instances of China exploiting loopholes to bring companies into US stock markets without the safeguards, audits, and other disclosures needed to protect US investors. Federal regulators need access to the audit reports of these companies in the same way that they would the audits of firms from other countries. There is no reason to allow our financial markets to fund the predatory capitalism of China’s state influenced entities.”
Under the EQUITABLE Act, foreign companies whose audit reports are not inspected by US regulators would be expelled from US stock markets. The legislation provides for a short notification provision, to avoid sudden losses for existing shareholders. The bill also requires that non-compliant companies be subject to a disclosure regime that informs investors of potential risks.
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