With more than 200 Chinese companies on the brink of getting delisted from New York’s primary stock indices, discussions between American and Chinese regulators are being fast-tracked. If successful, US inspectors will be given the go-signal to head to Hong Kong and conduct a thorough review of audit documents they were previously barred from accessing.
According to market analysts, the ongoing round of talks may result in the breaking of China’s hardline stance against allowing foreign auditors to inspect the financial documents of Chinese companies being traded overseas.
Indeed, the US Securities and Exchange Commission (SEC) has been adamant that its regulators be given access to any and all relevant audit documents held by Chinese corporations.
Is Time Running Out for Chinese Firms in the US?
Over in Beijing, China’s main securities regulatory agencies have advised several big accounting firms to be on standby about ferrying the audit documents of several US-listed native corporations to Hong Kong. There, the Public Company Accounting Oversight Board (PCAOB) will do a preliminary review.
What Beijing is trying to prevent is the wholesale removal of Chinese businesses from US indices by 2024, in line with an announcement made by the US SEC back in March that it would delist these companies from the New York Stock Exchange (NYSE) and the Nasdaq for not complying with its auditing requirements.
Gary Gensler, chairman of the SEC, stated that there is no room for compromise as far as relevant US laws are concerned.
What’s Beijing Going to Do About It?
Last April, the Chinese Securities Regulatory Commission published a possible amendment to the law that has long prevented Chinese companies from sharing their audited financial information, along with other sensitive documents, with foreign regulators.
This specific amendment and the way that China has tried to fast-track discussions are seen as triggered responses to the US’ 2020 Holding Foreign Companies Accountable Act which gave the SEC the authority to delist foreign companies from both the NYSE and Nasdaq if they did not comply with a review of their financials by American inspectors within a period spanning three consecutive years.
The regulatory agency removed the clause stating that only Chinese regulators could look into the financial documents of any domestic enterprises listed in foreign exchanges.
This opens the door to cross-border regulatory cooperation, and the Commission has declared that it is willing to extend its assistance throughout the process.