The U.S. Securities and Exchange Commission (SEC) is changing the requirements for China-based companies to be listed on U.S. stock exchanges.
Reuters reported on July 30 that a leading SEC official confirmed that Chinese companies will be required to disclose any potential interference imposed on their businesses by the Chinese government on their regular business reports.
"Public companies must disclose significant risks which, for China-based issuers, may sometimes involve risks related to the regulatory environment and potential actions by the Chinese government," Allison Lee, who served as acting head of the SEC from late January to mid-April, told Reuters.
SEC Chair Gary Gensler recently requested an increase in the staff’s engagement to “target additional reviews of filings for companies with significant China-based operations.”
The new filing mandates, intended to diminish the general disregard of such disclosures on behalf of Chinese businesses, include information related to investors and the possible risks of the Chinese government interfering in their business operations. A total of 418 Chinese companies listed on U.S. exchanges have collectively earned $12.8 billion in investments in the U.S. stock exchange this year, Reuters reported.
In addition to interference attempts, Chinese issuers must also report denied permissions from Chinese authorities to list. According to Reuters, select businesses will also be required to note their U.S. operations via an offshore shell company, creating additional legal risks.
"I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies," Gensler said.