More than 200 Chinese businesses have gone public in U.S. capital markets, but many investors don’t realize that the Chinese Communist Party (CCP) refuses to let these companies open their books to American regulators. This refusal threatens the savings of American workers and families. The financial risk resembles an iceberg: Chinese companies such as Didi and Luckin Coffee are just the tip.
One of the safeguards Americans rely on is the Public Company Accounting Oversight Board (PCAOB). Its regulators vouch for the accuracy of the books of every firm — American and foreign — operating on a U.S. exchange.
Firms under the thumb of the CCP, though, have a penchant for lying to the PCAOB or snubbing its oversight altogether. That leaves Americans looking to invest flying blind.
At a time when the PCAOB estimates that the Chinese firms registered with it have a global market capitalization of roughly $2.3 trillion, China has made it impossible “for the PCAOB to obtain timely access to relevant documents and testimony necessary to carry out [its] mission.”
As a result, Chinese businesses are freer to commit fraud than their American, Asian, and European competitors. Luckin Coffee, for instance, made up a nonexistent $310 million in sales in less than a year. When such fraud comes to light, these businesses’ stock values can drop quickly — dragging Americans’ savings down with them.
Congress has taken decisive bipartisan action to force companies that flout the PCAOB off U.S. markets, but the CCP probably won’t accept such accountability graciously. In fact, President Xi Jinping’s regime is becoming more belligerent by the day. It’s up to President Biden to protect American investors as the CCP vies for global leadership.