The Securities and Exchange Commission reportedly has ceased processing registrations by Chinese companies for security sales, including initial public offerings.
The move comes as the SEC works on new guidelines for disclosing to investors the risk of continued regulatory crackdowns by China’s government, knowledgeable sources told Reuters.
In a statement Friday, SEC Chairman Gary Gensler said "I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective."
Genser said that he was concerned U.S. investors frequently don't understand the structure of the companies whose shares they are buying. In cases where China forbids foreign ownership, "many China-based operating companies are structured as Variable Interest Entities (VIEs). In such an arrangement, a China-based operating company typically establishes an offshore shell company in another jurisdiction, such as the Cayman Islands," Gensler said.
The Chinese government has taken action against U.S.-listed Alibaba (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report and Didi Global (DIDI) - Get DiDi Global Inc. Report in recent months. Days after Didi executed its IPO earlier in July, China forbade the ride-hailing titan from signing up new users.
The Wall Street Journal reported Thursday that Didi is contemplating going private to soothe Chinese regulators and make whole investors who have suffered losses as Didi’s shares declined since the IPO. Didi called The Journal’s report “not true.”
In any case, SEC commissioner Allison Lee said Tuesday that as part of their reporting chores, U.S.-listed Chinese companies must tell investors the risks of Chinese government interference in their activity, according to Reuters.
U.S. listings of Chinese stocks have jumped to a record $12.8 billion so far this year, according to Refinitiv. The market’s repeated surges to record highs have attracted Chinese companies. But the move against Didi has slowed things down.
Shares of Chinese companies listed in the U.S. tumbled late last week and early this week amid fears about the government crackdowns.
Didi fell 30% from July 21 to July 27. It recently traded at $10.14, up 3%, but has dropped 28% since its IPO.
Alibaba recently traded at $194.31, down 2%, and has slumped 15% in the last month.