The U.S. is the lead source of funding for companies worldwide. The ability to trade on the New York Stock Exchange, Nasdaq and other exchanges hugely benefits any company seeking to raise capital. The statutory trade-off is that publicly traded companies must open their financial records to U.S. regulators to deter fraud and harm to the American investing public. Chinese companies are refusing to play by these rules, and the Biden administration has been slow to enforce them. Soon, Paul Atkins—whom President-elect Trump tapped to be chairman of the Securities and Exchange Commission—can finally give teeth to the rules already on the books and start delisting noncompliant Chinese companies.
The harm posed by noncompliant Chinese companies to U.S. investors isn’t merely hypothetical. In 2020 it was discovered that Luckin Coffee, which is based in Xiamen, intentionally fabricated more than $300 million in 2019 sales, leading to its shares plunging 75% overnight. At TAL Education Group of Beijing, more than $85 million in net revenue overstatements arising from “phony contracts” led to the company acknowledging material weaknesses in its internal controls and the SEC imposing sanctions on the company in September 2023 for multiple violations of the Exchange Act. A 2017 article published by the Federal Reserve questioned generally whether economic data on Chinese companies were accurate or “just smoke and mirrors.”
Read the full article, co-authored by Fletcher W. Strong, in The Wall Street Journal.
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