Senior Republican financial officers from 21 states urged the SEC to determine whether Chinese companies should be awarded the U.S. Stock Exchange for failing to protect U.S. investors.
Officials asked SEC Chairman Paul Atkins to investigate the companies on Tuesday because Chinese policy “has “created an opaque environment” with reporting requirements from U.S. law.
“China’s actions create a mature environment for fraud and abuse, increasing the likelihood of disclosure, audit or anti-fraud provisions under the U.S. Stock Exchange Act,” officials in states such as Pennsylvania, South Carolina and Arizona said in a letter obtained in the Financial Times.
The letter marks the latest move by the United States and lawmakers in the United States, who believe that U.S. funds should not be used to help Chinese companies, especially anyone with connections to the Chinese military.
Officials say the SEC has the power to auditors in countries that do not comply with the Securities Exchange Act or rely on the U.S. Public Company Accounting Oversight Board cannot conduct effective inspections.
They noted, for example, that the Communist Party of China weakened the ability of foreign companies to conduct due diligence on Chinese companies and allowed the use of an opaque structure called a variable interest entity arrangement to help “circumvent our regulatory scrutiny.”
Officials said these concerns, combined with the "general flaws" found by the PCAOB in its inspection of Chinese auditors, "need to carefully check whether Chinese companies should be listed on U.S. exchanges."
The letter comes two weeks after two senior Republican lawmakers urged Chinese companies, including Alibaba, touted Chinese companies, including Alibaba, that military links have hurt U.S. security.
House China Committee Chairman John Moolenaar and Senate Aging Committee Chairman Rick Scott urged Atkins to take action. Moolenaar told FT on Monday that he has since spoken with the SEC president on the issue.
“We need to discuss the urgent need to address the risks posed by CCP-connected companies in the capital market,” Moolenaar said. “I look forward to continuing these conversations and working together to strengthen law enforcement, protect U.S. investors and ensure that our market is not used to fund the Chinese Communist Party’s military and surveillance ambitions.”
OJ Oleka, CEO of the National Financial Officials Foundation, said his members immediately sent the letter because Donald Trump was "the president, who is willing to be strong on China and the CCP and put the United States first."
"It takes great doubt to accept that Chinese companies are doing their best to comply and be fully transparent with U.S. regulators," Oleka added.
The SEC declined to comment. Asked about the letter from Moolenaar and Scott, Atkins told reporters Monday that the SEC was “still digging” and “trying to figure out the issue”, noting that it was his 20th day of work.
The letter from financial officials will increase pressure on Atkins to announce policy measures against China. His predecessor, Gary Gensler, reviewed Beijing's participation in the U.S. securities market and promoted an inspection of auditors of Chinese groups listed in the U.S.
Since the deal with Beijing in 2022, PCAOB has sent teams to inspect the Chinese audit company, which reached an agreement after Congress passed a law to auditors whose auditors are not subject to our supervision.
PCAOB Chairman Erica Williams told FT this month that regulators continue to test “all aspects of the provisional agreement” to ensure it can conduct a comprehensive investigation and inspection of it. "So far, we have been able to do it," she said.
But she warned that the agreement between the China Securities Regulatory Commission and the Chinese Ministry of Finance would fail if the Oversight Committee was abolished, PCAOB.
Proposals for the Republicans to close the agency and absorb its functions into the SEC are included in Trump’s tax bill, which is passing Congress.