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
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
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
×