U.S. reportedly investigating Chinese companies' reverse mergers

Chinese workers assemble electronic components at the Taiwanese technology giant Foxconn's factory in Shenzhen

Steve Chiotakis: Manufacturing in China is slowing down, according to a report from HSBC Holdings. Concern about a slower Chinese economy is one reason for a recent drop in Chinese high-tech stocks. Another reason is a report that the Justice Department is looking into possible fraud at Chinese tech companies listed here in the U.S.

Marketplace's Rob Schmitz reports that's likely to help deflate what's become a Chinese tech bubble.


Rob Schmitz: The bubble began losing its buoyancy earlier this year. That's when dozens of Chinese tech companies listed publicly in the U.S. admitted their auditors were resigning over bookkeeping irregularities.

Michael Clendenin is managing director of RedTech Advisors in Shanghai.

Michael Clendenin: I think in general this has made the justice department quite nervous and the SEC even more nervous about how these companies -- that are listing in the U.S. but are outside of U.S. jurisdiction -- what kind of accountability do these companies have to the markets they're actually listed in, and are they frauds?

To find out, investigators are expected to take a close look at reverse mergers. It's when a Chinese company sells itself to a much smaller U.S. firm that's already publicly listed. That minimizes scrutiny from U.S. regulators. Now with this new investigation, that scrutiny will intensify as federal prosecutors pour over the financials.

In Shanghai, I'm Rob Schmitz, for Marketplace.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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