According to the Financial Times, China will use a system that categorizes its firms into three different groups based on the data sensitivity of the firm. The move from Beijing is considered an effort to stop U.S. regulators from delisting hundreds of U.S.-listed Chinese companies.

The system aimed to follow U.S. laws that require listed companies’ accounting data to be accessible by auditing regulators. 

Under the system, these Chinese firms will be classified into three groups. Those with sensitive data, those with non-sensitive data, and those with secretive data. 

This system allows low-risk Chinese firms to share their data with U.S. regulators. 

U.S. authorities have long pressed China’s counterpart to allow access to accounting data of the U.S.-listed Chinese firms. In April, China changed an old law restricting data sharing with foreign firms. 

Y.J. Fischer, director of the Office of International Affairs at the U.S. Securities and Exchange Commission (S.E.C.) in May, said that Chinese officials had restrained the U.S. accounting oversight board from obtaining auditing work papers for over a decade.

Fischer revealed that about 1.7 trillion dollars in the market value of Chinese firms were listed on U.S. exchanges. And these companies could face delisting in as soon as two years. That means they will no longer have access to U.S. capital markets for failing to comply with regulatory requirements.

About 260 Chinese companies, including well-known brands like Alibaba, Yum China, Weibo, JD.com, and Baidu, could be delisted if they do not meet the listing requirements.

Fischer said that despite productive discussions between the two sides, significant problems still need to be solved.

In late May, SEC transferred the sixth batch of 88 Chinese stocks listed under the provisional list to the conclusive list under the Holding Foreign Companies Accountable Act (HFCAA), including Weibo, KE Holdings, JD.com, Bilibili, Autohome.

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