The Securities and Exchange Commission will demand that the more than 250 Chinese companies directly trading on the NYSE and Nasdaq better inform investors about political and regulatory risks, expanding a dictate that it recently imposed for firms seeking initial public offerings.
SEC Chair Gary Gensler said Tuesday that the enhanced disclosure requirements should be included in China-listed companies’ annual reports in early 2022. The new details “would likely include” information about shell-company structures, known as Variable Interest Entities (VIE), he was quoted as saying in Bloomberg.
VIEs present risks to investors as the Chinese government could clamp down on this loophole.
I believe that China-based companies that want to raise capital from American investors should disclose more of the information we need to make informed investment decisions. pic.twitter.com/EoGihzKTDN
— Gary Gensler (@GaryGensler) August 16, 2021
Last month, Gensler said the SEC would halt new IPOs from Chinese companies until they bolster disclosures about those VIE set ups.
Gensler’s public remarks coincide with Beijing’s recent clampdown on private companies listing here, though the recent clampdown there is a moving target of unknowns.
China has gone after its wealthy tech billionaires, like Jack Ma, for going off the CCP reservation. Sometimes the party will go after political enemies, issuing proclamations of corruption. Regardless, all of this becomes political and regulatory risk for investors who pump thousands, if not millions, into Chinese companies only to watch their share value evaporate due to the risk stemming from the volatile whims of the CCP.
The SEC needs to move much faster to push China’s companies in line with other foreign companies that are required to publish third-party audits of their financials, as well as what was announced today by Gensler.
Disclosures will eventually include agreements to cooperate with the Public Company Accounting Oversight Board’s long-standing request for those third-party financial audits, Gensler said this month. “If the Chinese companies do not open up their books in the next three years, whether Cayman-based or China-based, they won’t be listed here,” he said.
China has been exempt from doing that for years, despite the Oversight Board’s bemoaning the fact. China cites state secrets for not allowing for those audits. Gensler is giving them more time, but they have had much longer than three years to comply.
CPA is focused upon excising CCP companies from our capital markets. U.S. investors should not unwittingly fund companies that refuse to disclose their financials or to those helping China’s genocide or military modernization.