The U.S. House of Representatives passed legislation on Wednesday that could prevent Chinese companies from listing their shares on U.S. exchanges unless they adhere to U.S. auditing standards.
The measure passed by unanimous voice vote, after passing the Senate earlier this year, sending it to the White House, which said President Donald Trump is expected to sign it into law.
"The Holding Foreign Companies Accountable Act" bars securities of foreign companies from being listed on any U.S. exchange if they have failed to comply with the U.S. Public Accounting Oversight Board's audits for three years in a row.
While it applies to companies from any country, the legislation targets Chinese companies such as Alibaba, tech firm Pinduoduo Inc. and oil giant PetroChina Co Ltd.
Measures taking a harder line on Chinese business and trade practices generally pass Congress with large margins, as both Democrats and Trump's fellow Republicans echo the president's hard line against Beijing.
Democratic Sen. Chris Van Hollen, who co-authored the bill with Republican Sen. John Kennedy, said in a statement that American investors "have been cheated out of their money after investing in seemingly-legitimate Chinese companies that are not held to the same standards as other publicly listed companies."
Kennedy said China was using U.S. exchanges to "exploit" Americans. "The House joined the Senate in rejecting a toxic status quo," he said in a statement.
The act would also require public companies to disclose whether they are owned or controlled by a foreign government.
Greater scrutiny could also deter other Chinese firms from listing in the United States, say industry participants. Such listings reached a six-year high this year.
Chinese foreign ministry spokesperson Hua Chunying said before the vote that it was a discriminatory policy that politically oppresses Chinese firms.
"Instead of setting up layers of barriers, we hope the U.S. can provide a fair and non-discriminatory environment for foreign firms to invest and operate in the U.S.," Hua told a news conference.
Chinese authorities have long been reluctant to let overseas regulators inspect local accounting firms, citing national security concerns.
Officials at China's securities regulator indicated earlier this year they were willing to allow inspections of audit documents in some circumstances, but past agreements aimed at solving the dispute have failed to work in practice.
Shaun Wu, a Hong Kong-based partner at law firm Paul Hastings, said increased enforcement against Chinese companies was likely even though Democrat Joe Biden will become president in January.
He said that if the bill becomes law, "all Chinese companies listed in the U.S. will face enhanced scrutiny by the U.S. authorities and inevitably consider all available options."
This could include listing in Hong Kong or elsewhere, he said. Several U.S.-listed Chinese firms, including Alibaba and KFC China operator Yum China, have recently carried out secondary listings in Hong Kong.