A US-China audit deal will prevent delistings
As of March 31, 2022, there were 261 Chinese companies listed on major US stock exchanges, with a total market capitalization of US$1.3 trillion. The benefit of this international listing is that non-Chinese citizens can trade shares of these companies. But, US law requires that companies on the stock exchange must allow regulators access to corporate auditors’ records. China and Hong Kong have been holding out for years, which has added to tensions between the two economies and potentially meant that these Chinese companies would be delisted from US exchanges for noncompliance. China’s reasoning, for the most part, has been to keep sensitive information and “state secrets” safe from prying American eyes.
But, a week ago, both countries finally signed an agreement to work together and allow the US to inspect audit work papers related to US-listed Chinese companies. Basically, the agreement allows US regulators to inspect mainland China and Hong Kong accounting firms, which might end the dispute and prevent stocks from delisting.
On Friday, vice chairman of the China Securities Regulatory Commission (CSRC) Fang Xinghai confirmed that China would carry out an audit agreement with the US. Fang also said that China plans to expand mutual access between the mainland and Hong Kong and that it’ll support the city as a global listing venue.
“On August 26, 2022, the Public Company Accounting Oversight Board (PCAOB) signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S law," read a statement from the PCAOB.
“We will implement well the Sino-U.S. cooperative agreement on cross-border audit supervision, and will continue to strengthen communication with overseas institutional investors," Fang Xinghai said.
“We have this unprecedented arrangement signed this morning, but we still need to see over the next several months whether there will be compliance," US Securities and Exchange Commission Chair Gary Gensler said in an interview on Bloomberg TV’s “Surveillance."