London Daily

Focus on the big picture.
Wednesday, Jun 03, 2026

As US Congress considers delisting Chinese companies, Wall Street looks to step in and police itself

A market-driven approach, not legislation, is considered a more effective way to keep fraudulent companies from hurting US investors. If bill becomes law, foreign companies will be required to hand over audits for US inspection or face delisting

Wall Street is scrambling to regulate Chinese companies listed on US equity markets to avoid intervention by US lawmakers, who have expressed bipartisan frustration over the lack of financial transparency the firms have offered even as they seek investors on American exchanges.

US securities watchdogs have been in a continuing struggle with China over inspecting the audits of the country’s US-listed companies, and Beijing has refused to comply, citing state secret laws.

A market-driven approach, industry participants said recently, would be a more effective way to stem fraudulent companies from hurting US investors. At the same time, it could help prevent an exodus of fast-growing Chinese companies from US capital markets and help US investors maintain desired exposure to China’s higher growth.

“The Chinese government really widened the moat with the revised securities law that went into effect this year,” which has made “the perpetrator of the frauds effectively beyond the reach of US law,” said Carson Block, founder and chief investment officer at Muddy Waters Capital, a California investment firm known for its short-selling strategy that profits from dropping stock prices by disclosing corporate wrongdoings.

Over the years, Muddy Waters has exposed accounting problems at several Chinese companies, most recently Luckin Coffee.

What can be done, Block said, is to focus on “US arms of the auditors, of the investment banks, maybe even the lawyers” as they are “the enablers” and “look to hold them financially and materially responsible”.

He also said US headquarters of global auditing firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young and KPMG and the like – should be required to provide collateral for audit failures of their Chinese affiliates in the form of financial guarantees.

“This is analogous to a parent who often would bear financial responsibility for wrongdoing of their minor children,” he said.

Block’s proposal effectively advocates some self-policing by a group of Wall Street insiders, highlighting the distance American investors are willing to go to avoid having Congress decide the fate of Chinese firms in US capital markets.

The legislation at hand – the Holding Foreign Companies Accountable Act – passed the Senate unanimously in late May. If the House of Representatives approves it and it becomes law, any foreign company, including Chinese, would be required to hand over audits for US inspection or face delisting if it failed to do so for three straight years.

“It is a privilege to be a public company listed in the United States,” said Elad Roisman, who sits on the US Securities and Exchange Commission.

“The benefits of this privilege include not only access to our retail investors and their hard-earned money, but also the association with our rigorous regulatory regime, where this regime confronts challenges from companies that operate in emerging markets.”

Drew Bernstein, co-founder of Marcum Bernstein & Pinchuk, a New York-based accounting and advisory firm focused on China, said, “If [the company is] registered here, then you should be subject to inspections.”

“Although the Chinese companies have choices right now, and certainly choosing exchanges close to home where investors understand their companies is a big thing, the US markets are still the gold standard because they offer things that other markets don't – for example, very, very deep and diversified sources of capital,” he said.

Meanwhile, the US investment community has pushed back since the Senate passage, calling the approach “blunt” and saying such law should be “reserved as the last resort”.

The New York Stock Exchange – the world’s largest by market capitalisation, more than US$30 trillion – said last week that it would support the introduction of a separate indicator for issuers that are not set up for inspection. That would provide more transparency, especially for people who don’t typically have the means to look into each company they invest in.

Nasdaq, a US$11 trillion exchange, said last week that while it was “not opposed to the legislation”, there were still things that could be done before resorting to a new law.

“With a little centralised guidance to each stakeholder, [we can] try to ensure that we are listing companies and trading companies that deserve that status. We've taken some early steps now, but there's probably more we can do, and that legislation really should be the last resort,” said John Zecca, a Nasdaq legal and regulatory officer.

Some large US investors have defended Chinese companies, despite their lack of transparency and the low quality of documents, saying they have a place in American capital markets.

“All of our disclosures talk about the risks of emerging markets in our portfolios that include different accounting standards, different exchange standards, different risks,” said Rodney Comegys, principal global head of Vanguard Equity Index Group, managing US$5 billion.

“Emerging markets should only be a portion of a portfolio. As part of global investments, that is roughly about 10 per cent, and China only represents about 5 per cent of a globally diversified market capitalisation weighted index fund. And it gives you the benefits of diversification,” he added.

Historically, audit quality is low in China because accountants there have learned China is not going to cooperate because of the state secret law. Bernstein added that “unfortunately the [US regulators] never contemplated these problems when they registered these companies. I don’t think anybody ever really contemplated that on day one.”

One effective way to improve transparency, as Block suggested, is to hold the American auditing firms accountable.

“These auditors are happy to license out their names so that people will trust the audits coming from the ‘Big Four’ affiliates in China,” he said.

“As soon as something goes wrong, the parents of the Big Four turn around and say ‘no, no, no, not us.’ That has to change,” he said. “If they are happy to collect [fees] and try to build the value of the brands [by sponsoring] a golf tournament, they should also bear financial responsibility because the people to whom they license their brands can't be touched and can't cooperate.”

Newsletter

Related Articles

0:00
0:00
Close
Japanese Technology Firm Fujitsu Launches Advanced Artificial Intelligence Tool for Corporate Disclosures
South Africa Officially Launches Nationwide Campaign for Highly Contested Local Government Elections
United Kingdom Commits Additional Funding for Unexploded Ordnance Clearance in Laos
Singapore Announces Stringent New Greenhouse Gas Regulations for Commercial Cooling Systems
Cambodia and Thailand Hold High-Level Border Security Talks at United Nations Headquarters
Myanmar Military Government and China Sign Major Agreement to Upgrade Media and Cultural Cooperation
Knife Attack at Swiss Train Station Leaves Three Injured in Suspected Act of Domestic Terrorism
Transnational Extortion Gang Threatens Canadian Police With Army of One Thousand Armed Operatives
Australia Imposes Forty-Two-Day Quarantine on Cruise Ship Passengers Following Deadly Hantavirus Outbreak
International Monetary Fund Unlocks Seven Hundred Million United States Dollars for Sri Lanka Following Economic Reforms
Australia Launches Record One Point Four Billion Dollar Lawsuit Against Chemical Giant 3M Over Contamination
China and Canada Foreign Ministers Meet in Ottawa in Effort to Stabilize Strained Diplomatic Ties
Indonesia Demands Urgent United Nations Security Council Reform Amid Escalating Global Conflicts
Extreme Weather Patterns Trigger Severe Drought in Madagascar and Destructive Flooding in East Africa
Indian State of Karnataka Faces Political Upheaval as Chief Minister Siddaramaiah Abruptly Resigns
Philippines and Japan Reaffirm Defense Ties as Crucial for Indo-Pacific Regional Stability
Norway Joins French Nuclear Deterrence Initiative in Major Shift for European Security Architecture
Global Critical Mineral Alliances Expand as Western Nations Move to Counter Chinese Supply Dominance
United States Imposes Fifty Percent Tariffs on Mexican Steel and Aluminum Ahead of Trade Pact Review
European Union and China Head Toward Major Trade Conflict Over Clean Technology Exports
United States Economic Growth Severely Downgraded to One Point Six Percent as Stagflation Fears Mount
World Health Organization Warns Central African Ebola Epidemic is Outpacing Containment Efforts
United States Treasury Department Conditions Sanctions Relief on Reopening of the Strait of Hormuz
Iranian Air Defenses Intercept and Destroy United States Military Drone Over Bushehr Province
Iranian Armed Forces Launch Ballistic Missiles Toward Unspecified Targets Prompting Regional Condemnation
United Nations Secretary-General Warns Global Order Facing Highest Level of Conflict Since 1945
Israel Issues Sweeping Evacuation Orders in Southern Lebanon Amid Intensified Hezbollah Conflict
Russia Announces Systemic Military Strikes Targeting Ukrainian Defense and Energy Infrastructure
United States and Iranian Negotiators Reach Draft Agreement to Extend Ceasefire and Resume Nuclear Talks
United Nations Security Council Deeply Divided Over United States Capture of Venezuelan President
US and Iran Exchange Direct Military Strikes Amid Fragile Gulf Ceasefire
World Health Organization Warns of Catastrophic Ebola Outbreak in DR Congo
Russia Threatens New Wave of Strikes on Ukrainian Infrastructure and Embassies
Scientists Warn Atlantic Ocean Currents Could Collapse Faster Than Projected
Anthropic Reaches $900 Billion Valuation in Historic AI Funding Round
Washington Imposes Crippling Sanctions on Iranian Maritime Authority
Japan and the Philippines Initiate Strategic Intelligence-Sharing Pact
Microsoft Deploys Autonomous Computer-Using AI Agents to Global Markets
Anthropic Secures $45 Billion Compute Infrastructure Agreement With SpaceX
U.S. Director of National Intelligence Resigns Amid Administration Shakeup
Micron Technology Crosses Trillion-Dollar Valuation Amid Unprecedented Hardware Demand
Canada and Germany Finalize Historic Long-Term LNG Export Agreement
China Expands International Travel Restrictions on Domestic AI Researchers
Japan Approves Sweeping Overhaul of National Intelligence Apparatus
Global Airlines Scramble Logistics as Middle East Airspace Remains Fractured
Japan's Naphtha Imports Plunge 47 Percent Amid Strait of Hormuz Closure
Global Crude Prices Retreat Below $96 as Gulf Tensions Momentarily Ease
Generative AI Outperforms Human Baselines in Landmark Global Creativity Study
NASA Partners With Private Aerospace to Unveil Permanent Lunar Base Architecture
South Korean Equity Markets Surge on Next-Generation Memory Chip Frenzy
×