I think the issue of Chinese companies listing on US stock exchanges is about to take center stage. It is an easy one - Chinese companies are not subject to the same regulatory rules as American companies. The area that gathers the most attention is the fact that China blocks the PCAOB from doing inspections of auditors (although it will cooperate on investigations of wrongdoing). This has been an issue for the 20 years since Sarbanes Oxley required inspections. The PCAOB has always had the power to fix the issue - by revoking the registration of Chinese accounting firms but has so far been unwilling to take the heat from the exchanges and other market participants. Several bills have been introduced (Rubio, Kennedy, etc) to kick Chinese companies off US exchanges unless inspections can take place. Those bills were not given much chance but now seem to have new life. Inspections would be nice, but they are unlikely to change much in terms of how audits are done or to uncover fraud earlier. I believe the accounting firms are actually trying to do good audits.

I think China will likely try to head off any effort to remove Chinese companies from US exchanges by compromising on inspections. We already see some Chinese movement on US listings, with China investigating recent frauds on US listed companies like Luckin Coffee. That is something China has not done before, even where it is clear that Chinese laws have been broken. While I believe China would prefer its companies list on Chinese stock exchanges, it is pragmatic enough to recognize that it needs US markets for a few more years.

A simple reform that will level the playing field and reduce fraud would be to remove the special privileges that foreign private issuers (FPIs) like Alibaba have on US exchanges. FPIs are not required to file quarterly reports reviewed by an auditor and are subject to relaxed disclosure requirements. Regulation FD, which leveled the playing field between investors, does not apply to FPIs, but it should. Some FPIs do not even hold annual shareholder meetings because the Cayman Islands, where most incorporate, does not require them. The relaxed rules were put in place to enable secondary listings of companies on US exchanges, and it was viewed that adding new disclosures to those required by home exchanges was too onerous. But in the case of China, most of the companies have their primary (and only) listing on the US exchanges, so the relaxed rules make no sense.