Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

China faces 'difficult set of choices' as it seeks to prevent its companies being delisted in the US

China faces 'difficult set of choices' as it seeks to prevent its companies being delisted in the US

The US wants full and unfettered access to the audits of US-listed Chinese companies, but China doesn't want US regulators unearthing state secrets as they poke around in the companies' financial affairs.

It was one of the few wrinkles during what was an exceptional year for Wall Street.

Just days after the Chinese ride-hailing app Didi made its stock market debut, in what was the biggest flotation of a Chinese company since Alibaba in 2014, Beijing launched a crackdown on its tech sector.

Shares of Didi and other Chinese tech companies fell sharply and investor confidence was severely rattled.

Amid a general deterioration in Sino-US relations, tensions flared in particular over a law passed by US Congress in May 2020, under which the Securities & Exchange Commission (SEC), the top US financial regulator, would be allowed to delist Chinese companies from US exchanges if American regulators were not allowed to review the audits of such companies for three consecutive years.

The legislation, which was written by both Republican and Democrat senators, was passed following a series of accounting scandals involving Chinese companies, most famously Luckin Coffee, which was forced to delist from the Nasdaq in April 2020 after admitting it had fabricated more than $300m worth of sales.

There is likely to be particular sensitivity around Chinese tech companies like Baidu


The law casts doubt on the ability of Chinese companies to raise as much money by listing on US stock exchanges as they have in the past. A number of big US-listed Chinese names, including Alibaba, Weibo and Baidu, responded by taking a dual listing in Hong Kong.

Forcing such companies to delist would also have huge ramifications for investors. Some 273 Chinese companies are listed in the US and they are worth a total of more than $2trn.

The SEC upped the ante last month by publishing a list of 11 Chinese companies - among them big names like Baidu, BeiGene and Yum China - that it said were in danger of being de-listed under the new law. Shares in all of the companies named fell on the news, with Baidu, the internet giant, coming off by 8%. BeiGene, a biotech company working on cancer treatments, saw its shares fall by a fifth.

But now peace is threatening to break out.

On Thursday, the China Securities Regulatory Commission (CSRC) said it had held several rounds of meetings with US regulators and that both sides had a "willingness" to solve the row. A day later, it told CNBC it had convened a meeting last week with some accounting firms and had told them to consider preparing for joint inspections.

It followed this up on Saturday by pledging to change confidentiality laws preventing its companies listed overseas from providing financial information to foreign regulators. The compromise is expected to do away with Beijing's current insistence that Chinese companies listed overseas can only be inspected on the ground by Chinese regulators.

It suggested this could include joint inspections by both Chinese and foreign regulators - provided companies took care not to disclose any state secrets to which they were party to the latter.

The news was enough to spark a rally in shares in Hong Kong on Monday and is expected to do the same when Shanghai reopens after a public holiday later on Monday.

Alvin Tan, an analyst with Royal Bank of Canada in Hong Kong, said: "[It] represents a major concession on the long-running dispute."

Janet Mui, head of market analysis at the wealth management firm Brewin Dolphin, added: "This lowers delisting risk, which is a key concern for investors."

News of a possible compromise sparked a rally on the Hong Kong Stock Exchange


The big question is whether the compromise offered by the CSRC will be enough to satisfy its US counterpart. It is, for example, quite clear from what it has offered that Beijing is anxious about the prospect of US regulators unearthing state secrets as they poke around in the affairs of US-listed Chinese companies. There is likely to be particular sensitivity around Chinese tech companies like Baidu.

That may not be enough to satisfy the SEC if it wants American regulators to have full and unfettered access to the audits of US-listed Chinese companies.

Gary Gensler, the SEC chairman, admitted as much when, in an interview at the weekend, he said: "It's up to the Chinese authorities and, frankly, it could be a difficult set of choices for them."

He noted that audits seldom contain confidential state secrets.

So there is still plenty that can go wrong here. The Chinese will argue that US-listed Chinese companies must not be forced to give up state secrets. The US will argue that its regulators cannot have full confidence in the audits of US-listed Chinese companies if parts of those audits are redacted.

It may all boil down to whether both sides can agree on whether some material can be withheld and what kind of material is deemed sufficiently sensitive to be withheld.

A compromise would be in the interests of both investors and the companies themselves. In the meantime, though, the only winner would appear to be the Hong Kong Stock Exchange.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
House Republicans Move to Defund OECD Over Global Tax Dispute
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
Intel Reports Revenue Beats but Sees 81% Rise in Losses
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
CEO Resigns Amid Controversy Over Relationship with HR Executive
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
Tulsi Gabbard Unveils Evidence Alleging Political Manipulation of Intelligence During Trump Administration
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Trump Announces Coca-Cola to Shift to Cane Sugar in U.S. Production
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Air India Pilot’s Mental Health Records Under Scrutiny
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
Moonshot AI Unveils Kimi K2: A New Open-Source AI Model
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Bitcoin Reaches New Milestone of $116,000
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
×