SEC Weighs Crackdown on Chinese Listings Amid Bipartisan Pressure and Investor Risk
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Bipartisan momentum is building in Congress to push the Securities and Exchange Commission (SEC) toward delisting Chinese firms with ties to the Chinese Communist Party (CCP) and human rights abuses.
Earlier in July, the U.S.–China Business Council reported that the SEC is under increasing pressure to consider regulatory changes that would limit Chinese firms’ access to U.S. stock markets, with new regulations expected to roll out soon. Experts say this could protect American investors and shield state pension funds from irregular losses.
Narrowing Exemptions for Foreign Firms
Under pressure from Congress and 21 state treasurers, the SEC is now reviewing whether to tighten rules that currently allow many Chinese companies to avoid U.S. disclosure requirements. On June 4, the agency opened a 90-day public comment period on a proposal to redefine the category of “foreign private issuers,” a designation that currently includes all China-based firms listed in the United States.Historically, foreign private issuers have been exempt from certain SEC rules under the assumption that they are subject to comparable oversight in their home countries and often trade on multiple foreign exchanges. However, SEC data now show that more than 55 percent of foreign private issuers trade only in the United States, with many registered in offshore tax havens such as the Cayman Islands but effectively operating as Chinese companies.
If adopted, the proposed rule change could force Chinese firms to either list on another major non-U.S. exchange or comply fully with U.S. disclosure standards, including quarterly financial reports and timely disclosures of mergers or major events. Companies that fail to meet these obligations could face delisting.
CCP Ties Pose Security Threats, Lawmakers Say
In May, 10 members of Congress from both parties, including Rep. John Moolenaar (R-Mich.), chair of the House Select Committee on the Chinese CommuChina, and Sen. Rick Scott (R-Fla.), chair of the Senate Committee on Aging, urged the SEC to delist Chinese companies with ties to the CCP. In a joint letter to SEC Chairman Paul Atkins, the lawmakers argued that these entities benefit from U.S. capital while advancing the strategic goals of the United States’ biggest foreign adversary, including “military modernization and gross human rights violations.”“In the People’s Republic of China, no company is truly private,” the letter pointed out, citing the CCP’s national security laws and control mechanisms such as mandatory embedded Party committees within corporations and state acquisition of “golden shares”—a form of state-held equity stakes that grant the communist regime outsized control despite minimal ownership.
The letter alleged that major Chinese firms listed in the United States, including Alibaba, Baidu, JD.com, Weibo, Pinduoduo, and XPeng, are subject to CCP control, and several are believed to have issued golden shares to the regime.
“Obviously, you don’t want companies that pose security risks to the U.S. to be listed in the U.S.,” Eli Bartov, a professor of accounting at New York University’s Stern School of Business, said in an interview with The Epoch Times. “If they have strong evidence to believe that certain Chinese companies pose a security risk to the U.S. government, or maybe can commit fraud, then this makes sense [to delist them].”
While national security is a key concern for lawmakers, state financial officers are also focused on protecting American investors.
Protecting American Investors
In the letter from 21 state treasurers in May, they warned that the CCP has created “an environment of opaqueness” that is antithetical to the purpose of U.S. financial reporting laws, putting American investors at risk.Bartov, who specializes in financial reporting and capital market regulation, supported the treasurers’ concerns.
“The disclosure requirements in the U.S. are very high—much higher than the disclosure requirements in China,” he said. “It’s difficult to audit these Chinese companies, and some of them were found to defraud U.S. investors. This requirement, to me, is reasonable because the role of the SEC is to protect American investors, and investing in Chinese companies represents an additional risk.”
According to the treasurers, audit inspections on Chinese companies have revealed unacceptable levels of deficiency, with various falsified reports and rule violations.
Impact of Delisting on US Markets
As of March 7, 2025, there were 286 Chinese companies listed on the New York Stock Exchange, Nasdaq, and NYSE American, with a combined market capitalization of $1.1 trillion, according to the U.S.–China Economic and Security Review Commission.While that may seem substantial, it represents just around 2 percent of the total U.S. stock market value, estimated at $52 trillion by Sibilis Research.
“The market in the U.S. is sufficiently liquid, and it’s huge. The damage to investors will be minimal,” said Bartov, regarding the impact of delisting the Chinese companies.
The real losers, he noted, would be the exchanges themselves.
“They charge them fees every year. So, for them, they will lose this annual fee that they receive from all these Chinese companies,” he said.
Pension Funds Stand to Benefit Most
Given the scale of state pension investments in U.S. equities, ensuring transparency and mitigating fraud risk is crucial, according to Bartov. Therefore, encouraging the SEC to delist high-risk Chinese companies is not necessarily a political move, but a prudent fiduciary one, he said.“So if there is fraud and investors lose money, the states lose a lot of money,” he said. “So I think this is in the interest [of the states] to protect investors and to encourage the SEC to force Chinese companies to delist.”
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Han Jiang contributed to this report.
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