The Chinese flag flutters outside the China Securities Regulatory Commission building in the financial district of Beijing, China, July 9, 2021. (REUTERS/Tingshu Wang)
HONG KONG: Beijing and Washington on Friday signed a deal to allow US regulators to scrutinize accounting firms in China and Hong Kong, ending a dispute that threatens to force Chinese companies, including Alibaba, out of US stock exchanges. I’ve taken a big step to make it happen.
U.S. regulators have long demanded access to the audit documents of U.S.-listed Chinese companies, but the Chinese government is citing security concerns as foreign regulators have forced accounting firms to do so. I was reluctant to check.
The deal marks a major thaw in US-China relations, for hundreds of Chinese companies and investors who have invested billions in companies that have the chance to maintain access to the world’s deepest capital markets. It is a great relief.
Despite both sides revealing details of the deal, U.S. officials have taken a cautious stance, warning that their views on China’s compliance will depend on whether they have full access to the Chinese company’s audited documents. did.
Still, the Public Company Accounting Oversight Board (PCAOB), which oversees audits of U.S. listed companies, said it was the most detailed and prescriptive agreement regulators have ever struck with China.
The China Securities Regulatory Commission (CSRC) said the agreement was an important step in addressing audit issues. US Securities and Exchange Commission (SEC) Chairman Gary Gensler said about 200 Chinese companies could be banned from trading if the issue is not resolved.
US regulators have previously identified Alibaba Group, JD.Com Inc, and NIO INC as affected.
The PCAOB said in a statement that the agreement “provides sole discretion to select the companies to investigate and investigate, audit work and potential violations without consulting or providing information to Chinese authorities.”
U.S. regulators added that inspectors will be able to “view the full audit work document with all information and to allow the PCAOB to retain the information as needed.”
“The PCAOB will have direct interviews and testimony from all personnel involved in any audit that the PCAOB inspects or investigates,” it said.
The deal comes on the back of rising tensions between Washington and Beijing after House Speaker Nancy Pelosi visited Taiwan, which China claims is its territory.
China’s securities regulator said keeping Chinese companies listed in the U.S. benefits investors, companies and both countries.
Friday’s agreement marks that the two sides “have taken an important step forward in resolving the audit regulatory issues of US-listed Chinese companies through enhanced cooperation,” the CSRC said in a statement.
“This is in line with the wishes and expectations of the market…if the subsequent cooperation meets the regulatory needs of both sides, it is hoped that audit issues will be resolved and passive delistings will be avoided. ”
Current U.S. regulations stipulate that Chinese companies that do not comply with audit documentation requirements will be suspended from trading in the U.S. in early 2024, although that deadline could be brought forward.
Gensler said Chinese companies still face delisting if US authorities cannot access their accounts.
“But make no mistake, the proof is in the pudding,” he said.
“This agreement only makes sense if the PCAOB can actually fully inspect and investigate Chinese audit firms.”
Major US-listed Chinese companies rose in pre-market trading, with Alibaba up 2.6%, Pinduoduo up nearly 6% and Baidu up 3.3%.
Samuel Siew, market specialist at CGS-CIMB, said: “This is seen as a positive first step. But as we’ve seen from various sudden reversals in the past, things are still quite set. not,’ he said.
In a statement, the PCAOB said Hong Kong was chosen as the location to conduct on-site inspections due to COVID-related restrictions in China, but U.S. regulators have the option of inspecting mainland China in the future. rice field.
Reuters earlier reported that Beijing had told some US-listed Chinese companies and their auditors to prepare to transfer audit documents and staff to Hong Kong for the next audit inspection by US regulators. .
Kai Zhan, a senior attorney at Chinese law firm Yuanda, said the agreement showed “both sides have a strong will to resolve this dispute.”
Zhang, who specializes in areas such as capital markets and US sanctions compliance, said, “Despite the Sino-US confrontation, cooperation has not completely broken down,” adding that challenges remain. added.
“In implementation, the two sides could easily clash on technical details, so uncertainty remains.”
