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Cheryl Heng

China’s securities regulator has proposed changes to key rules on Chinese companies listed abroad in a move that could ease a long-standing auditing dispute with the United States.
In revised draft rules released on Saturday, the China Securities Regulatory Commission (CSRC) withdrew a requirement that only Chinese regulators conduct on-site audit inspections of Chinese companies listed overseas.
The changes were made to “accommodate the new circumstances and developments concerning overseas securities listings and offerings” and Chinese regulators’ “open attitude” in audit oversight cooperation, the commission said in a joint statement with various agencies including the Ministry of Finance.
“China remains committed to supporting eligible companies of all types list or offer securities in overseas markets,” they said.
China plans new approach to end deadlock with the US over auditing
More than 200 mainland Chinese companies are listed on US exchanges.
In recent years, US regulators have increased scrutiny of the accounting standards of these companies amid allegations of ties to the military and use of forced labour in the Xinjiang Uygur autonomous region.
China has long denied US securities regulators the ability to inspect the financial audits of its US-listed companies, saying they contain state secrets.
The tensions culminated in 2019 with the US Holding Foreign Companies Accountable Act, which requires foreign companies listed in the US comply with audit inspection rules under the auspices of the Public Company Accounting Oversight Board (PCAOB) or face delisting within three years.
In the aftermath, US-listed Chinese companies were hit by bruising sell-offs.
In March, the Securities and Exchange Commission (SEC) identified 11 Chinese companies – including Baidu, Weibo and BeiGene and Yum China – liable under the law.
In the statement on Saturday, the CSRC said the proposed rules offered more guidance on protecting state secrets.
In practice, it is rare that companies need to provide documents that contain state secrets and sensitive information, according to the CSRC.
But should the situation arise, the burden of ensuring information security would fall on the Chinese companies, it said.
The amendments have been released for public feedback until April 17.
Li Ka-shing’s HutchMed is among first names on SEC’s auditing list
Louis Tse Ming-kwong, managing director at Wealthy Securities, said the proposed changes were a good start.
“It is a good beginning as China is willing to conform to US requirements to some degree, balancing the need for fundraising in overseas markets,” Tse said.
“But it is not necessarily that bad times are over. We still need to see further blueprints or if this would satisfy US regulators.”
SEC chairman Gary Gensler and CSRC chairman Yi Huiman have held three online meetings since August to discuss the prospect of cooperating on audit regulations, the commission said on Thursday.
It also said the Chinese securities regulator met representatives from the PCAOB, adding that communications were continuing.
Yet in the past week, US regulators have pushed back on speculation that the dispute was close to being resolved, demanding total compliance with US audit inspections.
Chinese authorities have ramped up efforts to bolster investor confidence. Last month, Vice-Premier Liu He vowed to keep capital markets stable, adding that talks between China and US on offshore listing issues saw progress and that Beijing supported overseas listings.


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US-China relations

China to bring down audit barrier in long-running US listing row

US regulators have increased scrutiny of the accounting standards of Chinese companies listed in the United States. Photo: AFP

How can Didi Global and 200 other mainland Chinese companies delist from the US?

Some 200 plus Chinese companies  listed on US exchanges have come under increasing scrutiny from American regulators. Photo: Bloomberg

Didi plans to list in Hong Kong after delisting from the NYSE. Photo: Shutterstock

Luckin Coffee delisted from Nasdaq in June 2020. Photo: Simon Song

Several US-listed Chinese companies have completed secondary offerings in Hong Kong. Photo: Nora Tam

Tongcheng-Elong listed on Hong Kong stock exchange on November 26, 2018. Photo: Handout.

China, US regulators start talks on audit inspection of Chinese companies on American exchanges amid moves to delist these firms

Traders work at the New York Stock Exchange in Manhattan on December 17, 2021. China’s securities regulator and American authorities have initiated talks on the audit inspection of US-listed Chinese companies amid the potential delisting of these firms. Photo: Reuters 

The facade of the China Securities Regulatory Commission headquarters in Beijing. Photo: Simon Song

People are seen on Wall Street outside the New York Stock Exchange building in New York City. Photo: Reuters

Didi starts to delist from New York and aims for Hong Kong amid Beijing scrutiny

Signage at the Didi Chuxing offices in Hangzhou on August 2, 2021. Photo: Bloomberg

US-China accounting war: SEC adds Baidu, Futu and three more to list of companies liable under audit oversight law

Baidu’s logo at the company headquarters in Beijing on April 23, 2021. Photo: Reuters

Headquarter of Futu Holdings in Shenzhen on 9 December 2020. Photo: Iris Ouyang

Baidu's logo at its head office in Beijing on August 4, 2019. Photo: Shutterstock

Hong Kong can take advantage of any ‘mass delisting’ of Chinese firms in US, Financial Secretary Paul Chan says

Financial Secretary Paul Chan Mo-po. Photo: KY Cheng

The Exchange Square building in Hong Kong. Research by brokerage China Renaissance suggests that about 80 of the 250 Chinese companies listed in the US, representing 90 per cent of all ADRs’ market capitalisation, could satisfy the listing requirements of bourse operator HKEX. Photo: AP

Chan says Hong Kong is in a very good position to take advantage of a mass delisting of Chinese firms in the US. Photo: KY Cheng

US Securities and Exchange Commission chair Gary Gensler. With the implementation of the Holding Foreign Companies Accountable Act, the SEC could delist non-compliant foreign stocks by as early as late 2023. Photo: EPA-EFE

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Inspections of US-listed Chinese firms will no longer be restricted to Chinese regulators
Burden of ensuring listing information complies with state security needs will fall to the companies, CSRC says


Burden of ensuring listing information complies with state security needs will fall to the companies, CSRC says.
