U.S. New Bill Introduced to Increase Pressure on Chinese ADRs

On December 23, the U.S. Congress passed a $1.7 trillion government expenditure Bill by 225 – 201 votes. The Bill calls for greater transparency in auditing the Chinese American Depositary Receipt Stocks (ADRs). The Accelerating Holding Foreign Companies Accountable Act would put additional pressure on Chinese ADRs by requiring foreign auditors to allow U.S. Public Company Accounting Oversight Board’s (PCAOB) inspections or them being delisted from U.S. exchanges if inspections do not happen after two consecutive years rather than three. On December 18, 2020, ex-President Trump signed the Holding Foreign Companies Accountable Act (HFCAA) into law. The law requires that if a foreign company’s audit report fails to be submitted to the U.S. Public Company Accounting Oversight Board (PCAOB) for review for three consecutive years.

Under the constraints of the new Bill, about 200 Communist Chinese stocks with a market value of about 1.3 trillion U.S. dollars may face a trading ban in 2024. For over a decade, the Chinese Communist Party (CCP) has refused to accept audits under the pretext of national security. However, after months of negotiations amid tensions between the U.S. and Communist China, the PCAOB said U.S. auditors were granted access to audit files for companies in Communist China and Hong Kong for the first time.According to Erica Williams, chair of the PCAOB, the Bill will increase pressure on China and protect investors’ interests.