[The Epoch Times, March 14, 2022](Jiang Feng, reporter from The Epoch Times Special Department) The US Securities and Exchange Commission (SEC) added five Chinese companies to a “temporary delisting list” on March 10 because of their Refuse to allow U.S. regulators to review their audit papers. The five companies are BeiGene, Yum China, Zai Lab, Shengmei Semiconductor and Chi-Med.
According to the Foreign Company Accountability Act passed in 2020, if U.S. regulators are unable to review the audit papers of a listed company for three consecutive years (i.e., as early as 2024), the company will be placed on a “determined delisting list”; if the The company has been in the “Delisting List” for three consecutive years, and it will officially enter the delisting process after the third year. After a company is placed on the “Delisting Delisting List”, it is required to submit additional disclosures, including the influence of the Chinese government on the company and the employment of relevant personnel of the ruling party in the company.
The five companies were the first to make the list because they were the first to file their annual reports. The SEC will identify companies that violate the Foreign Company Accountability Act on a rolling basis in the order in which they file their annual reports. In the next few months, companies will disclose their annual reports one after another, and it is expected that more Chinese concept stocks will be added to this “temporary delisting list”. The company will enter the official list 15 working days after being added to the provisional list.
SEC Chairman Gary Gensler issued a statement in December 2021 saying that the U.S. securities system has a ground rule that was introduced by Congress under the Sarbanes-Oxley Act of 2002. “If you want to issue public securities in the U.S., the company that audits your books must be subject to inspection by the Public Company Accounting Oversight Board (PCAOB).”
Gensler pointed out that while more than 50 foreign jurisdictions allow the PCAOB to conduct inspections of U.S.-listed companies in that country, there are only two exceptions, namely China and Hong Kong.
The U.S. Congress passed the Foreign Company Accountability Act in 2020 after Chinese regulators repeatedly rejected PCAOB inspection requests. In December 2021, the U.S. Securities and Exchange Commission passed an amendment to implement this legal rule. The above five are the first companies to be held accountable.
All U.S.-listed Chinese companies could end up on the delisting list because Chinese law prohibits them from providing audit papers to U.S. regulators. According to the “Securities Law” of the Communist Party of China, overseas securities regulatory agencies are not allowed to conduct investigations and evidence collection directly within the territory of China. Without the consent of the securities regulatory agency of the Communist Party of China and the State Council and the relevant competent departments of the State Council, no entity or individual may provide documents and materials related to securities business activities to foreign countries without authorization.
So why does the CCP prohibit U.S. regulators from reviewing audit papers of Chinese companies? Davy Jun Huang, an economist now living in the United States, told The Epoch Times that there are many secrets hidden in the audit papers.
“The Alipay exchange system is unique to Alibaba. Then why is he the only one who has it? Because there is a certain collusion between the government and businessmen behind it, it was granted to him by (the authorities) through some government relations.” Huang Jun is the China Enterprise Capital Union (CECU) Chief Economist, Director of the Asia Real Estate Association (ASEA) and Executive Director of the Research Committee.
Alipay, the payment app owned by China’s Ant Financial Group, has more than 1 billion users and has provided loans to about 500 million people, but it does not have to follow strict financial capital market regulations. Instead, state-owned banks provide most of the funding and undertake the risk. Several people closely related to former CCP leader Jiang Zemin participated in the investment in Ant Financial, including Jiang Zhicheng, Jiang Zemin’s grandson, and Li Botan, son-in-law of Jia Qinglin, a former member of the Politburo of the CPC Central Committee.
Another reason the CCP refuses to review audit papers by U.S. regulators is that the CCP’s interference in business operations would be exposed. Huang Jun said: “For example, if the government wants to push an ideological advertisement, it may be put on Tencent, Kuaishou, or iQiyi. But if it wants to tell you the audit manuscript of the audit report, all these things will come out. coming.”
Under the U.S. Foreign Company Accountability Act, a foreign company listed in the U.S. must file documents with the SEC to prove that the company is not owned or controlled by a foreign government. In August 2021, U.S. SEC Commissioner Allison Lee said in an interview with Reuters that Chinese companies listed on U.S. exchanges must disclose to investors the risk of Chinese government interference in their businesses.
In addition, Chinese companies are generally fraudulent, and the CCP government is well aware of it. “Some Chinese companies do not meet the US listing standards. They have lost money for many years in a row, and the entire process of compiling their financial reports is fraudulent.”
Huang Jun disclosed that the CCP still encourages them to go public in the United States, and even intends to arrange for some companies to go public overseas, allowing the international market to bear the risk of investment failure. Why does the CCP encourage Chinese companies to go public in the United States? Its purpose is to increase China’s link to the US capital market, and ultimately tie the US to the same boat as itself.
Huang Jun said: “Especially from 2003 to 2017, for more than ten years, (the CCP) has always hoped that the financial market between China and the United States will be linked.” Through the capital market link, the CCP can attract more American capital to enter China. Through cross-border listing, the CCP can also achieve the purpose of transferring benefits to Wall Street.
The U.S. passed the Foreign Company Accountability Act to force companies that flout U.S. auditing regulations to delist from U.S. exchanges as part of the U.S. government’s “financial decoupling plan” from China. The United States is systematically implementing a policy of decoupling from the Chinese economy, trying to separate the Chinese economy from the American economy and rebuilding the industrial chain among like-minded countries.
China is reluctant to decouple from the United States
In March 2022, Chinese Premier Li Keqiang stated at a press conference on Sino-US relations: “Since the two sides have opened the door to each other, they should not be closed again, let alone decoupled.” In November 2020, Chinese President Xi Jinping said at the “China will never go back in history and seek ‘decoupling’,” said the Asia-Pacific Economic Cooperation forum.
The CCP hopes to achieve deep ties with the United States and form a “community with a shared future”. There are deep-seated reasons for this.
Huang Jun said: “You see that Russia is being sanctioned now. If it were China, it would be difficult to sanction, because many of its companies are linked to the interests of the United States, so once it is sanctioned, it will affect many American capitalists and ordinary people. Investors.”
Regarding the US Securities Regulatory Commission’s delisting action, the China Securities Regulatory Commission responded on March 11: “The China (CCP) Securities Regulatory Commission and the Ministry of Finance have continued to communicate and dialogue with the US Public Company Accounting Oversight Board (PCAOB) and have made positive progress.”
Under the strong pressure of the comprehensive delisting of Chinese concept stocks, Huang Jun believes that the CCP will make compromises, but they will “revise” the audit manuscript. “For example, the (CCP) embassy called PetroChina and asked him to go to the “Star The Island Journal ran an ad, and he could fix it if he had enough time—don’t say the embassy was calling.”
Meanwhile, the SEC’s Operation Thunder is forcing U.S.-listed Chinese companies to switch to Hong Kong. Alibaba, JD.com, Baidu, Bilibili, Ctrip, Weibo and NIO have already taken this step.
In 2021, the Hong Kong government will “surge” the Hong Kong Institute of Certified Public Accountants to take back the supervision power of the Institute. The Hong Kong Institute of Certified Public Accountants is as famous as 11 professional accounting organizations in the world‘s major capital markets and is a founding member of the Global Accounting Alliance.
In 2021, the Financial Services and the Treasury Bureau promulgated the Financial Reporting Council (Amendment) Bill, which transfers the main regulatory responsibilities of the Institute of Certified Public Accountants to the Financial Reporting Council, which is responsible for licensing and regulating the industry. The industry’s self-regulatory practice, which has traditionally been run by the Institute of Accountants, has since disappeared.
Huang Jun said that the CCP’s move is intended to “clear the way” for Chinese stocks kicked out of the United States to list in Hong Kong.
“There must be some companies in China that do not meet the US listing standards. It has been losing money for many years in a row, and its financial report preparation process has been fraudulent, so it naturally does not meet the listing rules in Hong Kong. It is impossible that the listing rules in Hong Kong are inconsistent with the US listing rules. Global listing rules It’s basically the same. Then he’s trying to clear a hurdle for them to come back (in Hong Kong).”
Responsible editor: Lian Shuhua#