Accounting fraud at two highly visible Chinese companies have shaken the confidence of global investors while prompting US policymakers and exchanges to push for stronger accounting requirements for overseas companies listed in the United States. Whether or not Chinese regulators will comply remains to be seen.
Recent weeks have highlighted an increased scrutiny from Washington towards US-listed Chinese companies. In May 2020, the US Senate passed legislation requiring foreign companies listed on the NYSE and Nasdaq to open up their books to American regulators. Faced with the reality of increasingly hostile US oversight, many US-listed Chinese companies are actively weighing the costs and benefits of migrating exchanges – and many are settling on Hong Kong.
2020 is certain to be an arduous year for VCs around the globe; however, investors in China will emerge from the pandemic with a unique opportunity to invest in innovative companies at a discount. While China’s capital winter and coronavirus outbreak have shuttered the doors of countless startups, those resilient enough to have survived are likely to be positioned well to extend their industry influence and consolidate market positions.
Once the coronavirus outbreak is contained and business returns to ordinary operations, the Chinese market will continue to offer the unique opportunities that originally attracted global investors. With patience and an opportunistic approach, investors will discover a wealth of new opportunities to leverage the Chinese market’s low sensitivity to the global market and build a more diversified investment portfolio.