The reported decision comes after SEC commissioner Allison Lee on Tuesday said Chinese companies listed in the U.S. should disclose the risks of Chinese government interference to investors as part of their required reporting disclosures.
Similarly, a group of five GOP Senators on Wednesday urged SEC Chair Gary Gensler to "demand immediate and robust action" addressing a recent crackdown by Beijing officials on Chinese companies listed on U.S. stock exchanges. The SEC did not immediately respond to Forbes' request for comment.
Key Background
In a matter of days, China introduced regulatory actions targeting both ride-hailing app DiDi and the nation's education companies—harsh measures showing investors how risky investing in the market can be, Tom Essaye, author of the Sevens Report wrote in a Tuesday note. Days after DiDi's massive U.S. IPO, the Cyberspace Administration of China ordered app stores to remove the ride-hailer from their platforms, claiming it "severely violat[ed] regulations around the collection of personal data.
" DiDi stock has plunged nearly 50% since the action, wiping out nearly $50 billion in market value in less than one month. Then, in a weekend order earlier this month, China's education ministry barred "capitalized operations" among "online training institutions," saying such companies can no longer turn a profit or raise money in the public markets and triggering a selloff in the space that erased nearly half the market value of many education firms.
Crucial Quote
"Yes, there's a huge market and lots of growth potential, but obviously there are regulatory risks that seem to be growing larger with every passing month," notes Essaye.
Surprising Fact
The Nasdaq Golden Dragon China index, which tracks Chinese companies trading in the United States, is down 12% this week and nearly 34% over the past six months.
Big Number
$12.8 billion. That's how much Chinese listings in the United States have raised so far this year, according to Refinitiv data cited by Reuters. Genser said that he was concerned U.S. investors frequently don't understand the structure of the companies whose shares they are buying.
In cases where China forbids foreign ownership, "many China-based operating companies are structured as Variable Interest Entities (VIEs). In such an arrangement, a China-based operating company typically establishes an offshore shell company in another jurisdiction, such as the Cayman Islands," Gensler said.
The Chinese government has taken action against U.S.-listed Alibaba (BABA) - Get Report and Didi Global (DIDI) - Get Report in recent months. Days after Didi executed its IPO earlier in July, China forbade the ride-hailing titan from signing up new users.
Further Reading
Exclusive-U.S. regulator freezes Chinese company IPOs over risk disclosures -sources (Reuters)
US-Listed Chinese Tech Stocks Erase Nearly $150 Billion In Market Value This Week As China Stokes Regulatory Fears (Forbes)
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