Monday, March 05, 2012

Key Senator Asks SEC to Examine How Chinese Companies Access US Markets

In a letter to the SEC, Senator Bob Casey (D-PA) asked the Commission to investigate the means by which Chinese companies gain access to US capital markets and make recommendations as to how Congress may better protect US investors. Citing recent press reports, Senator Casey noted that Chinese companies are using offshore holding companies to circumvent US legal barriers and gain access to domestic capital markets. Further, once these investments have been made, investors have limited shareholder protections and non-existent recourse against fraud. Senator Casey urged the SEC to investigate these practices.

Recent activity in the solar energy industry illuminates the issues at hand. In recent years, he noted, a number of Chinese solar panel producers set up shell companies in the Cayman Islands to sell shares on the New York Stock Exchange and NASDAQ. US investors responded by investing heavily in these companies. These investments quickly proved unwise, said the Senator, as China began to heavily subsidize its domestic solar industry and drive worldwide prices down, hurting the stock prices of the shell companies.

Investors have no recourse to confront these situations, he said, adding that U.S. investors cannot properly vet their investments. Under Chinese law, accounting data is confidential, which means investors cannot verify accounting data from Chinese firms. Without this verification, he emphasized, Chinese firms should not be allowed on U.S. stock exchanges under any circumstances. Furthermore, even in cases of fraud, U.S. investors are not able to regain their money, because China will never allow any U.S. legal decision to be enforced.

According to Senator Casey, these practices have a devastating impact beyond US financial markets. The U.S. solar panel industry has been severely impacted by China’s illegally subsidized solar industry. Recently, the International Trade Commission voted 6-0 to move ahead with a case to impose duties on Chinese solar panels to restore a level playing field for US manufacturers. While the trade angle is essential to protecting domestic industry, he said, Congress and federal regulators must also protect US investors.

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