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Illustration: Sarah Grillo/Axios

Chinese companies will be unable to go public in the U.S. unless they make new risk disclosures, according to a statement released Friday morning from SEC chair Gary Gensler.

Why it matters: Chinese companies, and tech startups in particular, are already under growing pressure from their own government. Now they're also getting squeezed by U.S. officials.

How we got here: SEC commissioner Allison Lee said earlier this week that Chinese companies listed in the U.S. must disclose the risk of Chinese government interference in their business, following its punitive actions against companies like Didi.

  • Just hours before Gensler's statement, Reuters reported: "The SEC has asked companies not to submit any registrations for the issuance of securities until it gives them specific guidance on how to disclose the risks they face in China."

What Gensler said: Chinese companies seeking to register in the U.S. must disclose if they: "Received or were denied permission from Chinese authorities to list on U.S. exchanges; the risks that such approval could be denied or rescinded" and if such approval was rescinded.

  • Such companies also must allow the Public Company Accounting Oversight Board to inspect the issuer's public accounting firm within three years. If PCAOB is unable to do so, the company may be delisted.
  • He also "asked staff to engage in targeted additional reviews of filings for companies with significant China-based operations."

What it could mean, at least for now: Delayed or blocked U.S. IPOs for Chinese companies, several of which are in the post-Labor Day pipeline. Ditto for secondary stock offerings for already-public Chinese companies.

  • It's less clear if this would affect Chinese companies going public in the U.S. via SPAC. The SEC registration process on such deals is technically for the SPAC, not for the company being acquired.
  • For context, Chinese companies have raised nearly $13 billion so far in 2021 via U.S. stock listings, an all-time record.

The bottom line: Chinese companies, and tech startups in particular, have long been supported by both local officials and U.S. markets. Now their friends have become foes.

Go deeper

Felix Salmon, author of Capital
Sep 23, 2021 - Economy & Business

Evergrande's share price collapse: The world's biggest no-big-deal default

Data: FactSet; Chart: Axios Visuals

The monster debt crisis that utterly failed to cause any catastrophe this week was that of Evergrande, the Chinese property giant.

Why it matters: Evergrande's share price has collapsed to pennies, its bonds are pricing in a default with very limited recovery, and even its customers are demonstrating across China. But so far the broader repercussions have been minimal.

Felix Salmon, author of Capital
Sep 24, 2021 - Economy & Business

Evergrande's moment of truth

Data: FactSet; Chart: Axios Visuals

Evergrande, the Chinese property giant, was due to pay foreign bondholders $83.5 million Thursday as the semi-annual interest payment on its $2 billion bond due next year. It didn't.

Why it matters: This is the biggest missed coupon payment since the chaos of March 2020, and marks a key turning point in what could be one of the biggest and messiest corporate restructurings of all time.

Dan Primack, author of Pro Rata
20 mins ago - World

Merkel's departure could bring influx of private investment

Christian Democratic Union (CDU) party chairman and candidate for the federal elections, Armin Laschet, in front of German Chancellor Angela Merkel in Berlin on Sept. 26. Photo: Clemens Bilan - Pool/Getty Images

Angela Merkel's departure from German government may result in a massive influx of private investment.

Driving the news: The center-left Social Democratic Party, led by chancellor candidate Olaf Scholz, clinched a narrow victory in Germany's federal elections. It now will seek to form a coalition government by year-end with the Greens and the Free Democrats.

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