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Top Republican financial officers from 21 states have urged the Securities and Exchange Commission to determine if Chinese companies on US stock exchanges should be delisted for failing to protect American investors.
The officers on Tuesday asked SEC chair Paul Atkins to investigate the companies because of Chinese policies that “create an environment of opaqueness that is antithetical” to the reporting requirements of US laws.
“China’s actions create an environment ripe for fraud and abuse, increasing the likelihood that China-based US-listed companies will violate the disclosure, auditing or anti-fraud provisions of the Securities Exchange Act,” the officers from states including Pennsylvania, South Carolina and Arizona said in the letter obtained by the Financial Times.
The letter marks the latest move in the US by groups and lawmakers who argue that American money should not be used to help Chinese companies, particularly any with links to the Chinese military.
The officers said the SEC had the authority to delist firms that did not comply with the Securities Exchange Act or relied on auditors in countries where the US Public Company Accounting Oversight Board could not carry out effective inspections.
They noted, for example, that the Chinese Communist party had cracked down on the ability of foreign firms to conduct due diligence on Chinese companies and allowed the use of opaque structures known as variable interest entity arrangements to help “circumvent US regulatory scrutiny”.
The officers said those concerns, coupled with the PCAOB having found “pervasive deficiencies” in inspections of Chinese auditors, “necessitate a close examination of whether China-based companies should be listed on US exchanges”.
The letter comes two weeks after two senior Republican lawmakers urged the SEC to delist Chinese companies, including Alibaba, that they said had military links that hurt US security.
John Moolenaar, chair of the House China committee, and Rick Scott, chair of the Senate ageing committee, urged Atkins to take action. Moolenaar told the FT on Monday that he had since spoken to the SEC chair about the issue.
“We had a productive discussion about the urgent need to address the risks posed by CCP-linked companies in our capital markets,” said Moolenaar. “I look forward to continuing these conversations and working together to strengthen enforcement, protect American investors and ensure our markets are not used to fund the Chinese Communist party’s military and surveillance ambitions.”
OJ Oleka, chief executive of the State Financial Officers Foundation, said his members sent the letter now because President Donald Trump was “a president who is willing to be tough on China and the CCP and put America first”.
“It takes heavy suspension of disbelief to accept that China-based companies are doing their best to comply and be fully transparent with American regulators,” Oleka added.
The SEC declined to comment. Asked about the Moolenaar and Scott letter, Atkins on Monday told reporters the SEC was “still digging in” and was “trying to figure out about this issue”, noting it was his 20th day in the job.
The letter from the financial officers will increase pressure on Atkins to announce policy measures focused on China. His predecessor, Gary Gensler, raised scrutiny of Beijing’s involvement in the US securities market and pushed for inspections of auditors of Chinese groups listed in the US.
The PCAOB has sent teams to inspect Chinese audit firms annually since a deal with Beijing in 2022 that was agreed after Congress passed a law to delist companies whose auditors were not subject to US oversight.
PCAOB chair Erica Williams this month told the FT that the regulator continued to test “every aspect of that very prescriptive agreement” to ensure it can investigate and inspect completely. “Thus far we have been able to,” she said.
But she warned that the agreement between the PCAOB, the China Securities Regulatory Commission and China’s finance ministry would lapse if the oversight board was abolished.
A Republican proposal to close the agency and absorb its functions into the SEC is included in Trump’s tax bill, which is making its way through Congress.
