Hong Kong/Washington August 26, 2011 Beijing and Washington took a major step on Friday, signing a deal to delist Chinese companies including Alibaba from US stock exchanges and allow US regulators to audit accounting firms. China and Hong Kong.
U.S. regulators have asked for more than a decade to inspect the audit papers of U.S.-listed Chinese companies, but Beijing has refused to allow overseas regulators to examine its accounting firms, citing national security concerns. Read more.
The agreement eased relations between the US and China and was a big relief for hundreds of Chinese companies, their investors and US exchanges.
If not, 200 Chinese companies may be banned from US exchanges, said Gary Gensler, chairman of the US Securities and Exchange Commission. The agency has previously identified Alibaba Group, JD.Com Inc and NIO INC among those at risk.
US officials who announced the deal have warned that this is only a first step and that their view on China’s compliance will depend on whether they can carry out their inspections without hindrance as promised in the deal.
“Make no mistake, though: the proof will be in the pudding,” Gensler said. “This agreement will only be useful if the PCAOB can properly investigate and investigate audit firms in China.”
The Public Company Accounting Oversight Board (PCAOB), which still oversees audits of US-listed companies, said the regulator’s deal with China was far more detailed and conditional.
The China Securities Regulatory Commission said the deal was an important step in solving the audit problem.
In principle, the agreement appears to grant the PCAOB long-requested full access to Chinese audit working papers without redaction, the right to testify from Chinese audit firm employees, and discretion over which firms to select. He investigates. Read more
U.S. officials said they notified the selected companies on Friday morning and will land in Hong Kong, where the inspection will take place, in mid-September.
Regulatory needs
The long-standing dispute In 2020, the US Congress passed the Holding Foreign Companies Accountability Act, forcing the SEC to take a firm hand with US-listed Chinese companies. The SEC finalized rules implementing the law in December and began identifying companies this year, starting the clock on potential listings.
A deal was reached on Friday despite heightened tensions between Washington and Beijing following a visit to Taiwan by House Speaker Nancy Pelosi, who claims China is her own territory. Read more
China’s securities regulator says keeping Chinese companies listed in the United States has benefited investors, companies and both countries.
“If cooperation later satisfies each party’s regulatory needs, it is hoped that the audit issue will be resolved, and passive cancellation will be avoided,” the CSRC said in a statement.
If China fails to comply with US regulations, its companies will It stipulates that they could be banned from US trade as early as 2024, but that deadline could be brought closer. Gensler said Chinese companies still face delisting if the inspection is thwarted.
The PCAOB and SEC will make a decision on China’s compliance by the end of the year, the officials said.
“This is seen as a positive first step. However, things are not yet completely set in stone,” said Samuel Sieh, market expert at CGS-CIMB.
Major U.S.-listed Chinese companies rose in premarket trade, with Alibaba up 2.6%, PinDuo ( PDD.O ) up nearly 6% and Baidu Inc up 3.3%, before Federal Reserve rate hikes were weighed down by a broad sell-off on Wall Street. Read more
“This agreement is an important development for the global economy and US capital markets, which continue to be at the forefront of investor protection and access to the world’s leading companies,” said Lynn Martin, president of the New York Stock Exchange. press release.
Future challenges
PCAOB officials said the inspection will be conducted in Hong Kong because of China’s strict restrictions related to Covid-19, so there is an option to go to the mainland in the future.
Reuters previously reported that Beijing has ordered some US Chinese companies and their auditors to prepare to transfer audit documents and staff to Hong Kong. Read more
Cai Zhan, a senior adviser at Chinese law firm Yuanda, said that while the deal still has challenges, “both sides have a strong desire to resolve it.”
“Despite the Sino-US rivalry, cooperation has not completely ceased,” said Zhan, a specialist in various areas including the capital market and compliance with US sanctions.
“In implementation, both parties can easily conflict on some technical details, so uncertainty remains.”
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Reporting by Samuel Shen in Shanghai; Scott Murdoch, Xi Yu, Julie Zhou and Selena Lee in Hong Kong, Michelle Price in Washington, Tom Westbrook in Singapore. Additional reporting by John McCrank; Editing by Tomasz Janowski, Kirsten Donovan
Our Standards: The Thomson Reuters Trust Principles.
