SEC Faces Bipartisan Pressure to Restrict Chinese Companies’ Access to US Capital Markets
The Securities and Exchange Commission (SEC) is facing increased scrutiny from lawmakers on both sides of the aisle regarding the access of Chinese companies to US capital markets. A rare display of bipartisan cooperation saw Republican Senate Banking Committee Chair Tim Scott and Democratic counterpart Elizabeth Warren jointly send a letter to SEC Chair Paul Atkins, urging stricter regulations.
Bipartisan Concerns Over National Security and Investor Protection
Senators Scott and Warren, along with a significant number of their colleagues – 13 Republicans and five Democrats including Lisa Blunt Rochester, Chris Van Hollen, Raphael Warnock, and Andy Kim – warned of the “unique risks to national security, market integrity and investor protection posed by SEC-registered entities with ties to the People’s Republic of China.”1
The concerns center around the potential for US capital to be directed towards Chinese entities that contribute to the modernization of Beijing’s military. Lawmakers specifically highlighted the use of Variable Interest Entities (VIEs), opaque corporate structures that allow Chinese companies to circumvent foreign ownership restrictions and list on US stock exchanges.
VIEs and Lack of Transparency
The senators’ letter called on the SEC to examine how VIEs are utilized, suggesting they may serve Chinese government objectives in ways that undermine investor protection and fair market practices.1 Critics argue that these structures lack sufficient transparency, making it difficult to assess the true risks associated with investing in these companies.
In 2023, financial officers from 21 states requested the SEC to consider delisting Chinese companies from US exchanges due to concerns about investor protection.2
SEC Actions and Task Force
The SEC, under Chair Atkins, has already taken some action against foreign-based companies engaged in market manipulation targeting US investors.3 Atkins launched a task force in September 2025 to crack down on cross-border fraud, including potential securities law violations by Chinese companies. This task force will also scrutinize the auditors assisting foreign companies in accessing US capital markets.
This focus on risks linked to Chinese businesses incorporated abroad represents a continuation of efforts initiated under former SEC Chair Gary Gensler. Under Gensler, the SEC sought increased disclosures from offshore issuers linked to Chinese businesses and reached an agreement with Beijing to allow US regulators to inspect the work of auditors in China for the first time.
Industry Response
Christopher Iacovella, president and CEO of the American Securities Association, voiced strong support for the senators’ call for SEC action. He described the VIE structure as a “nefarious ‘legal fiction’” created by the Chinese Communist Party to access US capital markets and urged the SEC to end this practice.4
Atkins has stated the SEC’s commitment to ensuring compliance with rules and laws, including access to auditing working papers, and has halted trading of nearly a dozen Chinese companies exhibiting manipulative behavior.5
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