SEC Letter (Chairman Atkins)

The Honorable Paul Atkins

Chairman

U.S. Securities and Exchange Commission

100 F Street NE

Washington, D.C. 20549

Dear Chairman Atkins,

As Chairmen of the House Select Committee on the Strategic Competition Between

the United States and the Chinese Communist Party and the Senate Committee on Aging

and Members of Congress, we write to express grave concern over the continued presence

of Chinese companies on U.S. stock exchanges. These entities benefit from American

investor capital while advancing the strategic objectives of the Chinese Communist Party

(CCP), supporting military modernization and gross human rights violations. As described

below, they also pose an unacceptable risk to American investors. We urge the Securities

and Exchange Commission (SEC) to use its existing authorities to protect U.S. markets,

investors, and national security.

These high-risk firms operate across multiple sectors but share common

characteristics: many face U.S. government restrictions, maintain hidden Party control

mechanisms, secretly support Chinese military applications, or are linked to slave labor.

Several also use variable interest entity (VIE) structures, which obscure true control

and leave U.S. investors with no direct ownership over the Chinese operating company.

The firms listed above are merely examples. They illustrate deeper, structural

problems posed by the CCP’s control over Chinese companies that make the listing of their

securities on U.S. exchanges untenable.

First, in the People’s Republic of China, no company is truly private. The CCP

maintains sweeping authority over all firms—whether state-owned or nominally private—

through legal mandates and political control mechanisms. Under the 2017 National

Intelligence Law, all organizations and individuals are obligated to “support, assist, and

cooperate with state intelligence work,”1 and the Cybersecurity Law requires companies to

“provide technical support and assistance to public security organs” upon request.2 In 2020,

the CCP expanded its grip on the private sector, directing entrepreneurs to align with Party

priorities and participate in “united front” work —a strategy that advances CCP influence and supports intelligence collection for agencies like the Ministry of State Security.

These mandates are enforced through coercive instruments such as embedded Party committees5

and “golden shares”— state-held equity stakes that grant outsized control despite minimal ownership.

Second, the extent of CCP control over Chinese firms is systematically

concealed from U.S. investors. Chinese law prohibits companies from making disclosures

that “misrepresent or disparage” national policy,7 and the amended Counterespionage Law

classifies information about military ties, state ownership, and Party influence as national

secrets.8 As one witness testified before the Select Committee, “companies now can’t even

do due diligence in advance of any sort of business transaction” in the PRC for fear of

violating Chinese law.

These restrictions apply not just to parent companies, but to China-based

subsidiaries where Party-state control is often exercised. While U.S. disclosure

requirements focus on formal control mechanisms, the CCP leverages informal structures

such as internal Party committees or golden share agreements to exercise actual control—

and to obscure the material risks arising from that control in public filings.

Third, many of these firms are not merely opaque—they are actively

integrated into the Chinese military and surveillance apparatus. Under the CCP’s

Military-Civil Fusion (MCF) strategy, commercial entities are systematically mobilized to

serve defense and intelligence goals. Companies listed on U.S. exchanges have participated

in PLA weapons development, partnered with PLA-affiliated research institutes, and

supplied technologies used in repression and surveillance of China’s ethnic minorities and

Han Chinese majority alike. When the CCP’s demands conflict with U.S. law, Chinese

companies must advance the CCP’s goals, regardless of the impact on their bottom line.

American investors—often unknowingly—are financing firms that support the CCP’s

military expansion, internal security campaigns, and authoritarian governance model.

Fourth, Chinese law creates unpredictable risk to U.S. investors that enhanced

disclosures cannot mitigate. Because of PRC legal restrictions on foreign ownership of

Chinese companies, many also use VIE structures to list on U.S. exchanges—a shell

company arrangement that does not afford investors most shareholder rights.10 The CCP

could eliminate these structures at any time, leaving U.S. investors with no recourse.

11

Moreover, U.S. regulators have found that audits of PRC companies—typically

conducted by China-based auditors—often fail to meet U.S. standards.

12 While many state-

owned enterprises delisted from U.S. exchanges in 2022 to avoid audit scrutiny, numerous

private firms that remain listed are subject to the same faulty audit standards because of

the secrecy requirements and prohibitions on basic diligence and transparency noted above.

Taken together, these factors ensure Chinese companies face a direct conflict

between their legal obligations to American investors and the coercive control

exercised by the CCP. They are compelled by Chinese law to hide relevant and material

information about the CCP’s control over the company from U.S. investors and regulators.

Shell company structures like VIEs deny investors true ownership, and opaque auditing

practices prevent meaningful due diligence. These companies cannot be transparent about

their activities in the PRC. They must conduct activities that expose investors to regulatory

risks in the United States and elsewhere in the world. At the Party’s request, they can be

integrated into the People’s Liberation Army (PLA) military modernization and the CCP’s

human rights abuses at any time—and they must actively conceal these activities from

those outside of China, including American shareholders.

This is not just a transparency issue; it is a matter of national security.

The SEC has broad authority to suspend trading and compel delisting by

suspending or revoking the registration of the securities of Chinese companies that do not

adequately protect American investors under the Holding Foreign Companies Accountable

Act (HFCAA) and pursuant to Sections 12(j) and (k) of the Securities Exchange Act. We

urge the Commission to use these tools: no firm should remain listed if it cannot, by

design, comply with U.S. law...

Read the full letter HERE.