• Bryan

USD Bounces As The US Tightens The Screw On Chinese Companies

The US Senate has passed new legislation that prevents Chinese companies from listing on US stock markets.

The Holding Foreign Companies Accountable Act has bi-partisan support and was sponsored by Republican Senator John Kennedy and Democratic Senator Chris Van Hollen. It was passed unanimously.

Although the new legislation applies to all companies, it is designed to target Chinese firms by requiring public companies to disclose whether they are owned or controlled by a foreign government.

It also bars listing on US stock markets if a company has failed to comply with the U.S. Public Company Accounting Oversight Board’s audits for three years in a row.

The measure now has to be passed by the House of Representatives before being signed into law by President Donald Trump, and it comes amid growing tensions between the US and China over accountability for the coronavirus pandemic.

President Trump and other US officials have accused China of a cover-up and mishandling of the initial outbreak in Wuhan. Trump believes that China should be held accountable for the consequences of the pandemic, which has killed hundreds of thousands of people around the world and damaged the economies of countries.

Chinese authorities have vehemently denied trying to cover up the nature and extent of the outbreak during the early stages, however, Trump has indicated that he is minded to take punitive action against China.

President Trump has also accused the World Health Organisation (WHO) of assisting China in playing down the disease. In a tweet in January, the WHO echoed Beijing's initial assertion that there was no evidence of human to human transmission, even though medics in Wuhan were warning about this and were silenced by government officials.

Trump suspended US funding to the WHO and he threatened to make the funding cut permanent unless the world body made significant changes to how it operates, including greater transparency.

If the House of Representatives pass the Senate bill, and Trump signs it into US law, then the measures will further complicate the unravelling state of US-China relations. But even before the bill has become law, US-listed Chinese companies are coming under greater scrutiny.

The increased scrutiny on Chinese companies has been brought about by the recent scandal involving Chinese company Luckin Coffee. An internal investigation by the company found hundreds of millions of dollars of its sales last year were fabricated.

Luckin Coffee has since sacked its chief executive and chief operating officer, but this provides more justification for legislators in the US who believe that for too long Chinese companies have been allowed to operate in ways that did not meet US standards.

What does this mean for the market?

Some flows into the USD had been seen from late on Wednesday into early trading on Thursday amid rising concerns regarding deteriorating US/China tensions. It saw an easing in upside pressure from AUD, CAD, NZD, EUR and GBP, which were giving up some gains from the highs of the week. Should China announce some sort of retaliatory measures, this could spark huge risk-off trading (safe-haven flows).



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