Chinese Investment: Stop Complaining

The Wall Street Journal and the Financial Times had front-page stories yesterday on the Securities and Exchange Commission suing the China subsidiaries of major accounting firms for not cooperating with investigations into possible fraud at Chinese clients.

The famous multinational auditors are complaining, the Chinese firms are complaining, the Chinese government is complaining. None of these complaints has any foundation.

Let’s start with the big accounting firms. The quandary they are in was entirely predictable: They took on clients who wanted to list in the U.S. that were operating in a country where routine financial disclosure can often be considered a state secret. Here, it is a legal requirement. The accounting firms wanted to get paid for services they couldn’t properly render.

Next are the Chinese companies who wanted to list in the U.S. but, absurdly, still follow Chinese law on financial disclosure. There are plenty of Chinese companies whose stock is traded in the U.S.—there’s no excuse for a company listing now to not understand how the system works.

And let’s not forget the Chinese government, which complains about the American market being blocked. Chinese investment in the U.S. will set a record this year. This is a good thing and should be welcomed—if Chinese entities obey the law. If they don’t, the U.S. has good reason to inhibit their access, and the Chinese government has absolutely no cause to complain.

The Heritage Foundation’s China Global Investment Tracker (next update in January) makes it clear that this is an important issue. There are some countries where the rule of law is weak and Chinese investors can follow Chinese law rather than local law. The U.S. is not one of these places. If you want to do business here—in this case, have stock traded in the U.S.—obey the law.

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Source material can be found at this site.

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