The US Senate recently took a very big decision and passed a bill which would block many Chinese firms who don’t abide by US accounting laws to be listed on the US stock exchange. It comes as tensions between the united states and china have escalated due to the corona pandemic and the trade war happening between these countries The bill states that the companies have to certify that they are not being influenced by a foreign government.
The company would be delisted if the Public Company Accounting Oversight Board (PCAOB) is not able to audit the accounts of the companies for three straight years so as to determine the existence of external control by foreign governments. Chinese company have recently come under scrutiny after the incident involving luck in coffee which is a Chinese coffee company and coffee house chain in Beijing who recently revealed that an internal probe found hundreds of millions of dollars of its sales in 2019 being fabricated. This issue is china’s refusal to allow the PCAOB to examine audits of firms whose shares trade on the New York Stock Exchange, NASDAQ and other US platforms.
Recently it has been seen that over billions of dollars flow into some of china’s largest MNC’S, majorly from pension funds and funds allocated for college endowments in return for a huge investment. Several Chinese companies are using American money by the country’s technology giants to develop leading positions in everything from artificial intelligence and autonomous driving to internet data collection.
WHAT WILL HAPPEN IF THE CHINESE COMPANIES GET DELISTED
There are obviously going to be many repercussions to this action. Many companies like Google, Microsoft who are dependent on companies like Huawei for making hard chips are going to face severe losses. Although shareholders in these companies can keep their shares
and can also retain their rights as shareholders in these companies the cash value of these shares might be virtually nil and hence would not have any trade value as such. When these companies get delisted, their share prices will drop drastically and investors will witness this effect.
This can be seen as when NASDAQ resumed trading in Luck coffee which was suspended since April 7th, their shares collapsed by 36%. The removal of these company can shave as much as $1.8trillion value of the market. This bill can cause a ripple effect in the American markets which can lead various MNC’S to withdraw their shares from the American markets and can move to other markets which can cause a serious depreciation in the value. This bill still has to be passed by the house of representatives and need to be signed by President Donald trump which I think he definitely will.
