Pompeo Warns Investors About Opaque Chinese Firms

US Secretary of State Mike Pompeo has warned American investors against fraudulent accounting practices at China-based companies and said the Nasdaq's recent decision to tighten listing rules for such players should be "a model" for all other exchanges around the world.

His remarks on the issue illustrate the Trump administration's desire to make it harder for some Chinese companies to trade on exchanges outside of China.

President Donald Trump issued a memorandum on Thursday calling for recommendations to be issued within 60 days to protect US investors from what he said was China's failure to allow audits of US-listed Chinese companies.

"We must take firm, orderly action to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets," Trump wrote.

The statements mark the latest flashpoint in US-China relations at a time of escalating tensions between the world's two largest economies over trade, the coronavirus pandemic and Hong Kong.

"American investors should not be subjected to hidden and undue risks associated with companies that do not abide by the same rules as US firms," Pompeo said in his statement.

"Nasdaq’s action should serve as a model for other exchanges in the United States, and around the world."

"I applaud Nasdaq for requiring auditing firms to ensure all listed companies comply with international reporting and inspection standards," Pompeo added.

Nasdaq took action last month and tightened listing rules, in a bid to curb initial public offerings of Chinese companies closely held by insiders and with opaque accounting.

Nasdaq chief executive Adena Friedman said addressing the overseas accounting issues is a matter for the US Securities and Exchange Commission (SEC).

The exchange's tightening of listing standards came after Chinese coffeehouse chain Luckin Coffee, which had a US IPO in early last year, announced that an internal investigation showed its chief operating officer and other employees fabricated sales deals.

"The real issue is the lack of transparency and the lack of disclosure to the American investors," said Keith Krach, undersecretary for economic growth, energy and the environment at the US State Department.

Many US-listed Chinese firms will likely list on the Hong Kong exchange this year, in part because of US political pressure, the head of the exchange said on Thursday. (Reuters)