Beijing has offered a settlement in a long-running standoff with Washington over audits of Chinese companies listed in the US. It is a concrete first step that could prevent hundreds of Chinese companies from being delisted from US exchanges. The ball now goes back to the court in Washington – where its reception remains highly uncertain.
China’s securities regulator proposed amendments to China’s privacy laws over the weekend that would remove the requirement that audit inspections of foreign-listed Chinese companies be conducted primarily by Chinese regulators. It has been an important sticking point between China and the US for more than a decade. But in recent years the US position has hardened amid high-profile fraud cases involving US-listed Chinese companies such as Luckin Coffee and a general deterioration in bilateral ties.
As a result, more than 200 US-listed Chinese companies could soon be pulled out of US stock exchanges. The Securities and Exchange Commission has listed more than 10 companies since last month that declined to let US regulators review their most recent audit, meaning they could be delisted in 2024. The companies that have been identified include operators of Chinese search-engine giant Baidu and China’s Twitter. Service like Weibo.
This latest concession from China paves the way for a possible solution – at least in theory. Chinese technology stocks surge in Hong Kong: The Hang Seng Technology Index rose 5.4% on Monday.
It is no big secret why this is happening now after years of inaction on the part of Beijing. China’s economy is suffering from continued housing market woes, consumption damage from the country’s worst Covid-19 outbreak since Wuhan, and a sluggish labor market for young people – partly damaged by China’s regulatory crackdown last year. Because of that, foreign listed tech and education firms hit particularly hard. Delisting risks were also partly responsible for a heavy sell-off in Chinese stocks last month, which prompted Beijing to signal more supportive policies for the market in recent weeks. Chinese tech stocks have since made a strong comeback.
Now the question is whether this olive branch is enough for Washington. The US, like other listed companies, has stuck to its demand for full access to the audit papers. China is no longer pushing for on-site audit oversight, but much depends on whether US regulators think they can gain adequate access under the new arrangement.
Another question is which companies will actually benefit from the change. Under the draft rules, the burden of protecting state secrets now falls on private companies as well. They must report to financial watchdogs and other authorities before cooperating with foreign regulators. Given China’s wide-ranging view of state secrets, this could still cause tension, especially for companies holding large amounts of potentially sensitive information.
Nonetheless, Beijing’s latest move makes possible a possible deal with the US. It is too soon to know what Washington will decide, but at the very least investors everywhere are likely to welcome any sign of a more liberal stance from Beijing, however cautious and early.
This story has been published without modification to the text from a wire agency feed
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