China’s regulator renews pledge to widen market access, keep offshore listing channels open and resolve US auditing spat in an overture to bolster market confidence

China’s securities regulator said the Connect scheme between China and Hong Kong will be widened to include commodities and financial futures
The CSRC will strive to resolve an ongoing standoff with the US over auditing rules and launch new rules for Chinese companies to raise funds offshore

China stock market

Pearl Liu

Published: 3:11pm, 9 Apr 2022

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China’s securities regulator has renewed its pledges to widen investors’ access to the stock market and find ways to resolve an auditing dispute with the United States, delivering an overture to calm jittery nerves in the capital market amid a flare-up of the Covid-19 outbreak around the country.

The world’s second-largest capital market will widen the so-called Connect cross-border investment channels between China’s two domestic exchanges and Hong Kong, to let investors trade commodities and financial derivative products, according to the chairman of the China Securities Regulatory Commission (CSRC).

The regulator will also launch new regulations for domestic companies seeking overseas initial public offerings (IPOs), and “keep an unblocked channel for companies going public offshore,” the CSRC’s chairman Yi Huiman said in remarks prepared for the third annual meeting of the China Association of Public Companies (CAPC) in Beijing on Saturday.

The regulator, which is also empowered by China’s December 2020 national accounting law to find mechanisms to bridge the country’s auditing standards with global conventions, said it would “move forward” with a plan to work with the US to “establish an international regulatory environment for a highly [liberalised] capital market,” Yi said.

Hong Kong’s Chief Executive Carrie Lam Cheng Yuet-ngor (right) and the chairman of the China Securities Regulatory Commission (CSRC) Yi Huiman (left) during a meeting in Beijing on November 5, 2020. Photo: Handout.

Shanghai’s key Composite Index has fallen 1.3 per cent over the past month, making it the world’s ninth-biggest declining equity benchmark. Yi’s prepared remarks would bolster confidence among investors who have been beaten down by a relentless sell-off in technology stocks, combined with concerns of an economic slowdown as the Covid-19 pandemic flared up in Shanghai, Jilin province and Guangzhou city.

The CSRC proposed last week to draft new rules to allow foreign auditors to conduct on-site inspection of the account books of Chinese companies listed abroad. The regulator had been working with the US Securities and Exchanges Commission (SEC) and the Public Companies Accounting Oversight Board (PCAOB) at least since 2012 to bridge the gaps in auditing rules.

Cai Qi (left), a member of the Political Bureau of the Communist Party of China (CPC) Central Committee and secretary of the Beijing Municipal Committee of the CPC, and Yi Huiman (right), chairman of the China Securities Regulatory Commission (CSRC), at the opening ceremony of the Beijing Stock Exchange on Nov. 15, 2021. Photo: Xinhua

The revised rules could lower the barriers cited by the PCAOB in accessing Chinese accounting data, which puts more than 200 US-listed Chinese companies at risk of being delisted after three years of non-compliance, under the terms of the Holding Foreign Companies Accountable Act (HFCAA).

The HFCAA, written into law in the waning days of Donald Trump’s presidency, is one of several US statutes that are putting Chinese companies under intense scrutiny over everything from alleged use of forced labour in Xinjiang to ties with the Chinese military.

In recent weeks, the SEC has added US-listed Chinese companies to a list of firms deemed liable under the HFCAA. Each addition has led to a sell-off, as nervous investors dumped the stock over concerns of possible expulsion from the New York stock market. A total of 11 stocks had been added since March, from China’s largest internet search engine Baidu to the operator of KFC and Pizza Hut restaurants Yum China Holdings.

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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The CSRC chairman also mentioned during the Saturday meeting that the capital market in mainland and Hong Kong will strengthen collaboration and will maintain Hong Kong as the international financial centre.

“We will expand the Shanghai-Hong Kong Stock Connect scheme, move forward the Shanghai-London stock connect scheme, and further open the commodity and financial future market, to improve the competitiveness of our capital market,” Yi added.