12 more Chinese companies were added to SEC watchlist
On April 12, the U.S. Securities and Exchange Commission added 12 more NY-listed Chinese companies to a provisional list, including Microvast Holdings, China Automotive Systems, Daqo New Energy Corp, Connect Biopharma Holdings Limited, OneConnect Financial Technology, Green Vision Biotechnology, Legend Biotech Corporation, Sohu.com Limited, Studio City International Holdings, Melco Resorts & Entertainment Limited, Logiq, Inc. and Noah Holdings Limited. Sohu, an internet conglomerate most known for its search engine, has seen its shares fall slightly, to $19.
These companies face potential delisting under the U.S.’s Holding Foreign Companies Accountable Act (HFCAA).
According to the HFCAA, the Public Company Accounting Oversight Board has “the responsibility for determining that it is unable to inspect or investigate completely a registered public accounting firm or a branch or office of such a firm because of a position taken by an authority in a foreign jurisdiction.”
Since 2009, China’s SRC (Securities Regulatory Commission) has a rule that on-site inspections(of Chinese companies listing abroad) should be primarily done by Chinese regulatory agencies, or depend on Chinese regulators’ inspection results. The clause, potentially in conflict with HFCAA which came into effect in 2020, has been removed by Chinese regulators according to a draft published by the SRC on April 2. The draft is currently pending public feedback and will be implemented on April 17.
Chinese regulators are prepared to have some state-owned enterprises and private companies that hold sensitive data delisted but will provide assistance for other companies facing a delisting scare.
Previously, a total of 11 US-listed Chinese companies have already been picked out by the SEC, including Yum China, Baidu, iQiyi, Weibo, etc. Major tech companies such as Baidu, Alibaba, and JD.com, (the ladder two has not been added to the watchlist) have been instructed by Chinese regulators to prepare for more audit disclosures, according to a Reuters report.