The US now requires Chinese firms to reveal more details to the Securities and Exchange Commission (SEC) before selling shares and raising funds from American investors.
These new requirements for data disclosure focus primarily on Variable Interest Entities, a kind of shell organization often used to circumvent restrictions imposed by the Chinese government on overseas listings and foreigner ownership, as stated by Gary Gensler, Chairman of SEC.
The entities, normally based abroad in places like the Cayman Islands, enables American investors to gain exposure to Chinese organizations via service agreements and treaties with the operating organization.
According to Gary Gensler, US investors may not know they buy stock in shell organizations instead of working in China.
“Based on the recent happenings in China and the associated risks, I have requested workers to determine some disclosures from offshore issuers linked to China-based operating firms before declaring their registration statements.” Said Mr. Gensler.