Mainland companies listed on US stock exchanges must disclose the risks of the Chinese government interfering in their businesses as part of their regular reporting obligations, a top Securities and Exchange Commission official says.
Democratic commissioner Allison Lee's comments are the first by an SEC official since mainland regulators launched a massive cyber probe of ride-hailing giant Didi Global last week, just days after its US$4.4 billion (HK$34.32 billion) New York listing, wiping 25 percent off its share price.
Beijing has cracked down on other US-listed Chinese companies and may require tutoring firms to become non-profits, says a Bloomberg report, which hit shares in the sector, including New York-listed TAL Education Group and Gaotu Techedu.
Some policymakers worry Chinese firms are systematically flouting US rules, which require public companies to disclose to investors a range of potential risks to their businesses.
"Public companies must disclose significant risks which, for China-based issuers, may sometimes involve risks related to the regulatory environment and potential actions by the Chinese government," Lee said.
He was acting head of the SEC from late January to mid-April.
It was reported that Didi had been warned by regulators to delay its initial public offering and to address its cyber security.
Didi has said it had no knowledge of the investigation before its listing.
Lee declined to comment on whether the SEC had opened a probe of Didi.
"We should always be focused on ensuring investors are fully informed of material risks, such as the risks we've seen recently related to China," Lee said.
An SEC spokesperson said that the regulator conducts investigations on a confidential basis and does not acknowledge the existence of any investigation unless or until charges are filed.
Over the past decade, Washington policymakers have focused on getting US-listed Chinese companies to comply with US Public Company Accounting Oversight Board rules.
Last year Congress passed a law that would kick mainland companies off US exchanges unless they adhere to American auditing standards.
But regulators have not generally focused on Chinese company disclosure issues.
Some lawmakers are calling for the regulator to devote more resources to the issue.
"US regulators must ensure that American investors and workers are protected from the sort of nonmarket behavior that is leaving American investors scorched," said senator Bill Hagerty.
"This includes enforcing compliance with Public Company Accounting Oversight Board audit requirements as well as investigating whether there have been sufficient disclosures about the serious potential investment risks associated with such a centrally controlled economy," Hagerty said.
