Chinese authorities are working with U.S. counterparts to save Chinese companies from being delisted from U.S. stock exchanges as a prolonged controversy about auditing standards rumbles along, according to Reuters,
“We don’t think that delisting of Chinese firms from the U.S. market is a good thing either for the companies, for global investors or Chinese–U.S. relations,” Shen Bing, director-general of the China Securities Regulatory Commission’s (CSRC’s) department of international affairs, told a conference in Hong Kong.
“We are working very hard to resolve the auditing issue with U.S. counterparts, the communication is currently smooth and open. There is a risk of delisting of these companies but we are working very hard to prevent it from happening,” he added.
Recently, U.S. authorities have moved ahead with kicking foreign firms off American stock exchanges if their audits fail to meet U.S. standards.
In December 2020, during the last weeks of his administration, President Trump signed a law aimed at delisting foreign companies if they failed to comply with American auditing standards for three years in a row.
On 5 Nov. 2021, the Securities and Exchange Commission (SEC) approved a framework to determine which U.S.–listed companies will be delisted from American capital markets by failing to fully allow auditing inspection.
None of the roughly 270 Chinese companies listed on U.S. exchanges comply with the rule, SCMP reported.
The Public Company Accounting Oversight Board (PCAOB) and U.S. policymakers have long complained about a lack of access to audit working papers for the U.S.–listed Chinese firms. Meanwhile, Chinese authorities have been unwilling to allow overseas regulators to inspect working papers from local accounting firms, which they consider to contain state secrets.
Ashley Alder, CEO of Hong Kong’s Securities and Futures Commission, said he was afraid that Sino–U.S. tensions could hinder a solution.
“Sometimes politics can interrupt technical solutions that are sensible and achievable, and I pick up a degree of political attitude within the U.S. establishment that is not necessarily conducive to a better outcome.”
According to Reuters, Hong Kong formerly faced the same problems with access to mainland China audit working papers. Still, Alder said The Securities and Futures Commission of Hong Kong’s relationship with the CSRC and a 2019 agreement had enabled the resolution.
Hong Kong has benefitted from the Sino–U.S. discord, as a series of U.S.–listed Chinese companies have implemented secondary listings in the city in recent years, partly as a backup if they are delisted from the Nasdaq or NYSE, say market participants.
Last week, the Hong Kong stock exchange confirmed it would progress with rule changes to make secondary listings and make it easier to change a Hong Kong secondary listing to a primary one of overseas-listed Chinese companies.