SEC urged to limit Chinese corporations’ entry to US capital markets | USAEMALL.com

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The head of the Securities and Exchange Commission is facing fresh pressure from lawmakers to restrict Chinese companies from accessing US capital markets.

In a rare display of bipartisanship, Republican Senate banking committee chair Tim Scott and Elizabeth Warren, his Democratic counterpart, on Thursday sent a letter to Paul Atkins, who has served as SEC chair since April 2025 after being nominated by President Donald Trump to run the financial regulator.

Scott and Warren warned of the “unique risks to national security, market integrity and investor protection posed by SEC-registered entities with ties to the People’s Republic of China”.

All 13 Republicans on the committee and five Democrats — Warren, Lisa Blunt Rochester, Chris Van Hollen, Raphael Warnock and Andy Kim — co-signed the letter.

It is the latest effort to urge the SEC to take a closer look at how allowing Chinese companies to list on US stock exchanges can undermine national security and threaten the data privacy of US citizens.

Concern has been rising that US capital is being funnelled into Chinese groups that enable the modernisation of Beijing’s military.

The lawmakers cited as an example opaque corporate structures called variable interest entities, which allow Chinese companies to circumvent rules on foreign ownership of certain industries and assets to list on US exchanges.

The letter said the SEC “should examine how these structures are being used, as they may advance Chinese government objectives in ways that undermine investor protection and fair, orderly and efficient markets”.

“It is critical for the United States to address the threats posed by China and its use of opaque corporate structures, including the risks to US investors and the US financial system,” the senators added.

The SEC on Thursday said under Atkins the regulator “has taken action against foreign-based companies engaged in market manipulation and targeting US investors”.

The agency added it “will continue working to crack down on transnational fraud, including encouraging exchanges, issuers and other gatekeepers to do their part to protect investors”.

Christopher Iacovella, president and chief executive of the American Securities Association, said the organisation fully supported the effort by the senators urging SEC action.

“The VIE structure is a nefarious ‘legal fiction’ created by the Chinese Communist Party to access US capital markets, and it’s time for the Trump SEC to end this abuse of the capital formation process,” Iacovella said.

“CCP companies have accessed American capital for far too long while avoiding the same costly governance, disclosure and investor‑protection obligations that apply to US companies, and we support the senators demanding the SEC put an end to it.”

Critics of allowing Chinese groups to list on US exchanges also argue that the companies do not provide sufficient transparency. Last year, the top Republican financial officers from 21 states asked the SEC to determine if Chinese companies should be delisted from US exchanges for failing to protect American investors.

The regulator has sharpened its focus on risks linked to Chinese businesses incorporated abroad whose primary listing is in the US in recent years — a rare instance of continuity between Atkins and his predecessor Gary Gensler, who was appointed by former president Joe Biden.

Under Gensler, the SEC sought broader disclosures from offshore issuers linked to Chinese businesses and the US audit watchdog reached an agreement with Beijing to allow American regulators to inspect the work of auditors in China for the first time.

Atkins in September launched a task force to crack down on cross-border fraud harming US investors, including potential violations of securities law by companies from China, where, the SEC said, “governmental control and other factors pose unique investor risks”.

The task force would also scrutinise auditors helping foreign companies access US capital markets.

It came after the SEC’s Office of the Investor Advocate said in a report that it would focus on assessing risks linked to China-based variable interest entities in light of US investors’ growing exposure to this structure.

“We need to make sure that our rules are complied with and that our laws are complied with, that we have access to auditing working papers,” Atkins told Fox Business in December, adding that the SEC had halted trading of nearly a dozen Chinese companies that had shown signs of manipulative behaviour.