Restoring confidence: Strengthening the regulatory system for PRC firms listing overseas

In April 2011, Mary Schapiro, the chairman of US Security and Exchange Commission (SEC) stated that from December 2010 to March this year, the securities regulator had revoked the registrations of eight China-based companies and more than 24 Chinese firms after these companies disclosed accounting problems or auditor resignations. As of June 8 2011, Interactive Brokers Group Inc, one of the largest non-banking brokerages in the US said that it has banned its customers from using borrowed money to buy shares in more than 130 Chinese companies amid mounting fears of accounting irregularities in such firms listed in the United States. Chinese companies listed on overseas stock exchanges are experiencing a credit crisis.

The absence of a regulatory system for these companies is behind the credit crisis. For the purpose of overcoming the credit crisis, the related regulatory system should be consummated based upon the cooperation of onshore regulators and offshore ones. An analysis should be conducted of how the Chinese companies were able to achieve the overseas listing and this is the first step in assessing the issue.