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The SEC Caves on China

Feb 27 , 2015

U.S. stock-market regulators say they promote transparency and fair play, but this month the Securities and Exchange Commission quietly carved out a China-size exception: When Chinese companies list on U.S. markets, basic auditing rules won’t apply.

Why? Because China’s government doesn’t want them to, and Washington bent to Beijing’s pressure. The SEC has long sought access to the auditing records of Chinese companies suspected of fraud. Tens of billions of dollars in U.S. market value have disappeared in recent years as more than 170 U.S.-listed Chinese companies have faced scrutiny for embezzlement, theft, misrepresentation and other alleged abuses.

China-based auditors have refused to comply with SEC subpoenas for their clients’ paperwork, citing Chinese laws that treat such corporate information as state secrets. These laws, always vague and often harshly enforced, are a classic authoritarian tool for masking the political interference, graft and opacity endemic to China’s economy.

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