Congress could kick China listings off U.S. stock exchanges, but it won’t happen overnight


The bill rushed unanimously through the U.S. Senate and spun into the news cycle as if it were a certainty.

As the thinking goes, the House and then the president will shuffle this legislation into law, forcing Chinese companies listed on U.S. exchanges to play by the same transparency rules as those from other parts of the world.


Senate bill would require Chinese companies to establish that they are not owned or controlled by a foreign government and submit to an audit that the Public Company Accounting Oversight Board can review.

Normally, powerful entities would make the passage of this “anti-China” bill an uphill battle. The Nasdaq
NDAQ,
+1.18%
,
the NYSE
ICE,
+0.98%
,
the Securities and Exchange Commission and Wall Street in general largely oppose the move and the yanking of billions of dollars from their pocketbooks. And House Speaker Nancy Pelosi said Thursday that her side of the Capitol was willing to look at the issue, but no vote was promised.

But the legislation comes amid a striking U.S. political competition of sorts to show who is toughest on China — and during the crucial few months before the presidential election.

Also from Tanner Brown:U.S.-China relations are bad and getting worse, with major ramifications for trade and investment — and the U.S.’s presidential election

Even if a variation of the bill does eventually pass, already-listed firms will have three years to comply. That is ample time for China to increase the attractiveness of its own bourses, and for Chinese companies to prepare for a relatively smooth landing back home — likely Hong Kong for larger already-listed companies, and the growth boards for smaller startups, according to Peking University’s Paul Gillis.

China has already opened more attractive doors for public fundraising. After the decade-old Nasdaq-like ChiNext welcomed tech startups in Shenzhen, neighboring Shanghai learned from the pains and successes of that venture and unveiled the Science and Technology Innovation board, or Star Market, last year. Its niche is profit-losing tech-focused startups that show promise and otherwise might list in New York.

As of now, some 200 Chinese companies are listed in the U.S. — some in ways more transparent than others — possess a total market value of more than $1.8 trillion, according to the U.S.-China Economic and Security Review Commission.

Their departure would represent a big flight of capital from U.S. exchanges, a diminution of U.S. tax revenue, a loss to investors and, some would argue, a prestige hit for Wall Street as the center of global finance.

But it would also mean those willing to buy into U.S.-listed firms from China wouldn’t be duped like they were recently by Luckin Coffee, whose shares
LK,
-30.84%

resumed trading this week after a six-week freeze. Luckin’s American depositary receipts tumbled 36% on Wednesday from their closing price on April 6, after which trading was halted by Nasdaq. The stock plummeted 89% in the first quarter of this year. It ended the week at $1.38, against a closing level above $40 as recently as March 6.

Nasdaq has informed the onetime Starbucks
SBUX,
-0.55%

rival that it faces delisting after it disclosed that some employees fabricated $300 million in sales. Luckin is appealing the decision, but if it’s delisted investors would lose essentially all equity, a “wipeout” for which one analyst warned investors to prepare.

A Luckin Coffee location in Beijing on Jan. 15, before the fast-expanding chain — billed as a potential Starbucks slayer — was engulfed by controversy.


Bloomberg

Opinion:Luckin Coffee shows how risky Chinese IPOs can be, but investors are just not listening

“A lot of these companies, by the way, have already had scandals and cost investors a lot of money, because of their failure to be transparent in their reporting,” White House economic adviser Larry Kudlow told Fox News. “The Chinese government forbids that kind of transparency.”

The painful delisting decision may still be bothering Wall Street and the SEC, but lawmakers appear ready for action.

“We want investors to understand what they’re investing in,” said Sen. John Kennedy, a Louisiana Republican and a co-sponsor of the Senate bill. “And those reports have to be accurate or you get in a lot of trouble.”

Tanner Brown covers China for MarketWatch and Barron’s.



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Senate may vote on bill that could delist Chinese companies from U.S. stock exchanges


An earlier version of this story misstated the number of Chinese companies listed on U.S. exchanges. We regret the error.


Getty Images

As U.S.-China tensions continue to mount amid a war of words over China’s culpability in the coronavirus pandemic, the Senate looks set to consider sweeping new legislation that could ultimately bar many Chinese companies from listing shares on U.S. exchanges, or otherwise raising money from American investors.

Sen. John Kennedy, a Louisiana Republican, is preparing to submit the Holding Foreign Companies Accountable Act for unanimous consent in the Senate as early as on Tuesday, said Henrietta Treyz, director of economic policy at Veda Partners, in a note. The legislation has been co-sponsored by Democratic Sen. Chris Van Hollen of Maryland and Republican Sen. Kevin Cramer of North Dakota.

The law would require Chinese companies to establish they are not owned or controlled by a foreign government. Furthermore, they would be required to submit to an audit that can be reviewed by the Public Company Accounting Oversight Board, the nonprofit body that oversees audits of all U.S. companies that seek to raise money in public markets.

“The central core of the U.S. stock markets is that publicly listed companies are subject to financial oversight,” wrote attorney Steve Dickinson of Harris Bricken in the China Law Blog, adding that American companies seeking to raise money publicly must be audited by an accredited firm and that these audits are further monitored by the PCAOB. China has refused to allow its companies to follow U.S. securities law, arguing that Chinese law bars auditors’ work from being transferred out of the country, Dickinson wrote.

“Stated more directly, unlike companies from the U.S. and Europe and everywhere else in the world, Chinese companies that list on the U.S. stock exchanges are exempt from meaningful financial oversight,” the lawyer said.

The Senate legislation is not the first attempt by Congress to reform this state of affairs, which resulted from a 2013 agreement between the Securities and Exchange Commission and Chinese regulators. But with U.S.-China relations deteriorating in an election year, chances of this bill becoming law are higher than during past efforts, Treyz said.

“It is our view that if this bill is allowed to come up for a vote — meaning if no senator objects to the unanimous consent request today — then the bill will ultimately pass the U.S. Senate,” she wrote. “It has bipartisan support … and both Democrats and Republicans are eager to paint a clear picture that they are tough on China.”

The Trump administration has also voiced support for stricter oversight of Chinese companies. White House economic adviser Larry Kudlow told Fox Business Network on Tuesday morning that “we have to” push for more accountability from Chinese companies listed in U.S. markets.

“We have to for investor protection, and we have to for national security,” Kudlow said. “A lot of these companies, by the way, have already had scandals and cost investors a lot of money, because of their failure to be transparent in their reporting. The Chinese government forbids that kind of transparency.”

The bill would also need to pass the Democratic-controlled House of Representatives before reaching the president’s desk to be signed into law. “There is not yet a decision on whether to hold a vote on this legislation in the House, according to our conversations with trade and finance counsel there,” Treyz wrote. “But it is our view that there is bipartisan support for doing so as both Democrats and Republicans look to make their China hawk bonafides known to their constituents.”

The U.S.-China Economic and Security Review Commission compiled a list in 2019 of 165 Chinese companies that are listed on U.S. stock exchanges, including Alibaba Group Holding Ltd.
BABA,
+1.01%

, Baidu Inc.
BIDU,
+1.39%

and JD.com Inc.
JD,
-0.82%

, all of which could be at risk of being delisted if this legislation were to pass.



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Which equity markets and other asset trading exchanges are closed on Good Friday? Easter Monday?


It won’t be your typical Easter, or Passover, on Wall Street, in the era of the deadly COVID-19 pandemic that has forced a global shutdown of businesses and caused governments to impose social-distancing measures to curb its spread.

But, as is traditional, U.S. exchanges on Friday will be closed in observance of Good Friday, and those in Europe will also be closed for Easter Monday. The action on Wall Street is also likely to be more subdued with Passover starting Wednesday evening and ending the evening of April 16.

President Donald Trump had set Easter Sunday as a “beautiful” target date for the U.S. to get back to business, with “packed churches all over our country,” but that turned out to be an overly ambitious goal, even as the contagion has appeared to show glimmers of slowing, hinting at the possibility of somehow restarting the economy at some point.

Check out:Reopen America’ by Easter? This staggering chart shows why that could be ‘an error of epic proportions’

The Securities Industry and Financial Markets Association, a brokerage-industry trade group that recommends actions for the bond market, advises that bond dealers close an hour early, at 2 p.m. Eastern time on Thursday, and remain closed on Good Friday.

The New York Stock Exchange, owned by the Intercontinental Exchange
US:ICE,
and the Nasdaq Inc.
US:NDAQ,
which operates the Nasdaq Composite Index
US:COMP,
will be closed on Friday. The NYSE has been closed on the Friday before Easter every year since 1889, with two exceptions, in 1906 and 1907.

Read:A family Easter trip? Clemson’s powerful football coach commits a coronavirus fumble

The holiday is a quirky one for financial markets in the U.S. because Good Friday isn’t a federal holiday. In fact, it is among the few holidays that isn’t both a Wall Street and a federal holiday. Those include Columbus Day and Veterans Day, which are federal holidays but aren’t vacation days for Wall Street.

Therefore, data, such as the consumer-price index, a weighted-average measure of an array of consumer goods, will be released at 8:30 a.m. Eastern on Friday, even as traders have an off day.

Markets have struggled to find their footing as investors attempt to process the duration and economic severity of the coronavirus outbreak. CPI data likely won’t show immediate impacts of the pandemic, but other reports, including last Friday’s job figures that showed 701,000 lost jobs in March and last week’s record 6.6 million jobless claims numbers, have demonstrated stark signs of the devastation being wrought by COVID-19.

Still, markets have recently clung to data points that show a moderating spread in hot spots like New York and various locations in Europe. That notion has offered support to the bulls, buoying the Dow Jones Industrial Average
US:DJIA,
the S&P 500 index
US:SPX
and the Nasdaq, even with Tuesday’s lackluster finish.

U.S. markets for commodities, including gold
US:GCM20
and crude-oil futures
US:CL,
will be closed on Good Friday.

Perhaps a trading break will be a welcome respite for whipsawed investors.

All Western European exchanges, including in Frankfurt
US:DAX
and the represented in the FTSE 100
UK:UKX
and France’s CAC 40
FR:PX1,
are closed Good Friday and April 13, the Monday after Easter.

Elsewhere, the Toronto Stock Exchange will also be closed on Good Friday, as will exchanges in Hong Kong
HK:HSI,
Singapore
SG:STI,
Australia
AU:XJO,
New Zealand
NZ:NZ50GR
and South Africa.

Exchanges in Japan
JP:NIK,
South Korea
KR:180721
and Taiwan
TW:Y9999,
however, will be open for trade on both days.



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