The head of the U.S. Securities and Exchange Commission (SEC) Gary Gensler decided to make it difficult for Chinese companies to enter the IPO in the United States. He was afraid of Chinese repressions against their own companies that cause the Chinese stocks to plummet immediately after floating on the U.S. exchanges and foreign investors risk losing money. Bloomberg writes about it.
The Commission is focused on the structural peculiarities of Chinese companies. The direction of cash flows through so-called variable interest organizations, which allows companies to bypass China's restrictions on foreign investment, raises suspicions. According to the sources, whose names are not disclosed by Bloomberg, the SEC requires the Chinese to provide information on the mechanism of cash transfers and dividend payments between the main company and its legal entities as well as on the tax consequences of going public in the U.S. exchanges.
In addition, the commission has asked for further clarification on the risks associated with the political situation in China. It is concerned about the behavior of Chinese regulators, who are tightening their grip on technology firms and companies engaged in educational projects. The authorities' repressive measures have caused stock prices to plummet and led foreign investors to question whether to buy U.S. depositary receipts that allow them to take stakes in Chinese companies.
Consequently, some Chinese companies have postponed their plans to IPO in the U.S. or opted to go public in Hong Kong. Others, such as bike rental giant Hello Inc., have abandoned listing altogether.
Gensler was forced to tighten his grip on Chinese companies shortly after the stock of taxi-call service Didi Global Inc. dropped in a U.S. IPO in June. Immediately after the company's listing, China announced that it was conducting security checks and prohibiting it from adding new customers to the system. Regulators also forced some online education projects to become nonprofits, reducing their market value by billions of dollars, and foreign investors began scrutinizing Chinese media, trying to anticipate the authorities' next moves.