Discover Thomson Reuters By Pete Sweeney 3 Min Read HONG KONG (Reuters Breakingviews) – U.S. legislators are sinking their teeth into the wrong parts of Chinese corporate problems. A proposal to boot foreign companies off New York and other local exchanges if they don’t comply with auditing oversight is on its way to becoming law. It’s a fair demand, but targeting Chinese Communist Party members misses the mark, as does giving a free pass to domestic market participants. American investors deserve better protections; it has been far too easy for poorly governed Chinese businesses to sell their shares in lower Manhattan, with few financial repercussions for fraud. Chinese courts can jail executives and seize assets, but U.S. shareholders typically have little recourse when both executives and holdings are in China. That helps explain why the Hold Foreign Companies Accountable Act enjoyed bipartisan support in both the U.S. Senate and House of Representatives. The provisions look tough at first glance. Any foreign issuer that refuses to allow the Public Company Auditing Oversight Board to review its audits for three years faces delisting. Chinese laws against disclosing state secrets prevent most cooperation with international regulators, meaning that most mainland firms cannot comply even if they want to. They account for some $2 trillion of U.S. market value. The legislative proposal, which outgoing U.S. President Donald Trump is expected to sign, goes beyond safeguarding investors to explicitly target Beijing. It requires companies to disclose the names of board members who are Chinese Communist Party officials and to note whether their articles of incorporation include text from the Party’s charter. It is in Beijing’s interest to cooperate with fraud prevention, but shaming Chinese officials makes compliance less likely. America’s financial institutions have enabled the problems. Bankers, auditors, lawyers and others helped 31 Chinese companies raise nearly $12 billion this year alone. They get paid regardless of whether something sours later. They should be part of the solution, too. Veteran short-seller Carson Block of Muddy Waters suggests U.S. auditors be made financially liable for the failures of their Chinese operations and proposes that China-based auditors post “collateral” guarantees by U.S. affiliates. Both are good ideas; Congress has adopted neither. As it stands, their plan goes both too far and not far enough. Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time. Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors. All quotes delayed a minimum of 15 minutes. See here for a complete list of exchanges and delays.