Regulating U.S.-listed Chinese companies

Alibaba Group Holding Limited, the largest Chinese e-commerce company, listed on the New York Stock Exchange (NYSE) in 2014, marking the largest initial public offering (IPO) in history. The company chose to list in New York instead of Hong Kong or Shanghai in part due to more flexible U.S. listing requirements and, by doing so, became subject to regulation by the Securities and Exchange Commission (SEC).

Alibaba recently disclosed that it is the subject of a probe by the SEC into its accounting practices. While Alibaba has indicated it is cooperating with the investigation, many U.S.-listed Chinese companies have not been as willing. There have been more than 100 cases of alleged fraud at U.S.-listed PRC firms, and investors have lost billions. The SEC has been largely ineffective at enforcing U.S. securities laws against these Chinese businesses.

A statement made by Alibaba CEO Jack Ma with respect to the SEC investigation raised eyebrows: “Alibaba's business model does not have any references in the U.S., so it's not just a matter of one or two days for the U.S. to understand Alibaba's business model.” Alibaba's annual report filed with the SEC is 298 pages long, and Ma's suggestion that it is not adequate for U.S. investors to understand the business has been negatively received.