Accounting war: SEC ratchets up US-China dispute by adding JD.com, Pinduoduo and 80 Chinese stocks to list liable under auditing oversight law

The SEC added more than 80 US-traded Chinese companies to a list liable under the 2020 Holding Foreign Companies Accountable Act (HFCAA)
Under the law, foreign companies can be delisted if they fail to comply with the auditing oversight of a US body for three consecutive years

Accounting and auditing

Bloomberg

Published: 9:43am, 5 May, 2022

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US regulators added more than 80 companies, including JD.com, Pinduoduo and Bilibili, to an expanding list of firms that face possible expulsion from American exchanges because of Beijing’s refusal to allow access to the businesses’ financial audits.

The Securities and Exchange Commission (SEC) on Wednesday put the corporations on a provisional lineup of US-listed Chinese entities that face delisting under a 2020 law, starting a three-year clock to comply with inspection requirements. Some of the largest Chinese companies traded on US exchanges, including China Petroleum & Chemical Corp. ( Sinopec), JinkoSolar Holding, NetEase, and Nio were also added.

Wall Street’s main watchdog has long been expected to crack down on about 200 New York-traded firms with parent companies based in China and Hong Kong because the jurisdictions refuse to allow the inspections by American officials. The SEC’s publication of companies over the past several weeks has jarred investors who’d been hoping for a deal between regulators in Beijing and Washington.

The US and China have been at odds for two decades over the mandate that all companies that trade publicly in America grant access to audit work papers. Since Congress passed the law in 2020, the Public Company Accounting Oversight Board (PCAOB), which oversees auditors, and the SEC have been laying the groundwork for identifying companies that don’t comply.

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Firms face removal if they shirk requirements for three straight years, meaning they could be kicked off the New York Stock Exchange and Nasdaq as soon as 2024.

Critics say Chinese companies enjoy the trading privileges of a market economy — including access to US stock exchanges — while receiving government support and operating in an opaque system. But regulators in Beijing argue that Chinese national security law prohibits them from turning over audit papers to US regulators.