SEC official says that the Chinese companies must disclose government interference risks listed by the U.S.

July 28, 2021: -On Monday, Chinese companies listed on U.S. stock exchanges must disclose the risks of the Chinese government that interfere in their businesses as part of their regular reporting obligations, a U.S. Securities and Exchange Commission official said.

The comments of democratic commissioner Allison Lee are the first by an SEC official since Chinese regulators introducing a massive cyber probe of ride-hailing giant Didi Global in the previous week, after its $4.4 billion New York listing that wipes 25% off its share price.

U.S. authorities have cracked down on other U.S.-listed Chinese companies. They may require tutoring firms to become non-profits, according to a Bloomberg report that reaches shares in the sector, including New York-listed TAL Education Group and Gaotu Techedu.

Some policymakers worry Chinese firms are flouting U.S. rules systematically, which require public companies to disclose to investors a range of potential business risks.

“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,” Lee, who served as acting head of the SEC from late January to mid-April, told Reuters in an interview.

The Wall Street Journal has reported that regulators had warned Didi to delay its initial public offering and address its cybersecurity. Didi has said it did not know about the investigation before its listing.

“We should always be focused on ensuring investors are fully informed of material risks, like the risks we’ve seen recently related to China,” Lee says

As a matter of policy, an SEC spokesperson said that the SEC conducts investigations on a confidential basis and does not acknowledge the existence or non-existence of any investigation unless or until charges are filed.

In the last decade, Washington policymakers have focused on getting U.S.-listed Chinese companies to comply with U.S. Public Company Accounting Oversight Board rules. Last year Congress passed a law that would kick Chinese companies off U.S. exchanges unless they adhere to American auditing standards.

But regulators have not generally focused on Chinese company disclosure issues. Some lawmakers call for the SEC to devote more resources to the point.

“U.S. regulators must ensure that American investors and workers are protected from the sort of non-market behavior which includes leaving American investors scorched,” Senator Bill Hagerty, the Senate Banking Committee, said in a statement to Reuters.