Luckin Coffee, known as “China’s answer to Starbucks,” has a casual relationship with the truth. In April, the company was forced to disclose that its chief operating officer, Jian Liu, inflated its 2019 sales by $310 million. The revelation caused Luckin Coffee’s shares to fall by 80%, and its value to drop from $12.7 billion to less than $800 million.
“How is it possible that a Chinese company publicly traded on a major U.S. exchange got away with this fraud for so long?” writes U.S. Sen. John Kennedy in a special opinion piece.
Luckin Coffee was finally delisted from the American Nasdaq stock exchange, but the damage was done. Americans who invested in the Chinese company had already suffered tremendous financial damage.
The problem is that Luckin Coffee is just one of almost 200 Chinese companies listed in the U.S. not subject to inspection by the federal Public Company Accounting Oversight Board. These companies claim that Chinese secrecy laws prevent them from sharing “sensitive” paperwork for auditing by the PCAOB.
This double standard means that Chinese companies can freely trade on U.S. stock exchanges without facing the same scrutiny and regulations as their competitors, Kennedy writes.
To combat this threat, Congress just unanimously passed a measure with two main provisions: First, the bill requires foreign companies to certify that they are not owned or controlled by a foreign government—like China. The provision also requires companies to disclose any involvement by Chinese Communist Party officials. Second, any foreign company that does not open its books for PCAOB auditing for three consecutive years will be banned from trading stocks on U.S. markets.
That’s key to how this bill, the Holding Foreign Companies Accountable HFCA Act, will protect investors at home, but it is not without criticism. Read Kennedy’s full column.
