In principle, the deal appears to give the PCAOB what it has long demanded, namely full access to Chinese audit working papers without censorship, the right to take testimony from audit firm personnel in China, and discretion. exclusively to select which companies it inspects. .
US officials said they had notified the selected companies on Friday morning and expected to land in Hong Kong, where the inspections will take place, in mid-September.
The US Securities and Exchange Commission has identified Alibaba Group among those at risk.Credit:access point
Regulatory needs
The long-running dispute came to a head in 2020 when the US passed the Foreign Company Liability Act, forcing the SEC to take a harder hand with US-listed Chinese companies. The SEC ended the rules implementing the law in December, starting the ticking of the clock on possible exclusions of Chinese companies.
“We have to hold China to the same standards as any other company and any other country that is listed on American stock exchanges,” said Republican US Senator John Kennedy, a key architect of the 2020 law.
Charging
US rules stipulate that if China is found to be non-compliant, its companies could be delisted from US exchanges as early as 2024, but that deadline could be brought forward. Gensler said Chinese companies still face delisting if inspections are obstructed.
The PCAOB and SEC expect to make a determination on China’s compliance by the end of the year, the officials said.
“This is seen as a positive first step. However, things are not completely set in stone yet,” said Samuel Siew, market specialist at CGS-CIMB.
Major US-listed Chinese companies rose in premarket trading, with Alibaba up 2.6%, Pinduoduo gaining nearly 6% and Baidu Inc up 3.3%, before succumbing to the sell-off in Wall Street on concerns about the Federal Reserve. rate hikes.
China-based US issuers currently have a combined market capitalization of between $1 trillion ($1.45 trillion) and $2 trillion, the SEC said.
“This deal is an important development for the global economy and our US capital markets, which remain preeminent in large part because of their ability to balance investor protection and access to the world’s leading companies.” said Lynn Martin, president of the New York Stock Exchange in a statement.
Nasdaq, the other major US stock exchange, declined to comment.
challenges ahead
PCAOB officials said the inspections would take place in Hong Kong due to strict COVID-related restrictions in China, with the option to move to the mainland in the future.
Reuters previously reported that Beijing told some US-listed Chinese firms and their auditors to prepare to transfer audit documents and personnel to Hong Kong.
Kai Zhan, senior adviser to Chinese law firm Yuanda, said the deal shows “both sides have a strong will to resolve” the dispute, though challenges remain.
“Cooperation has not completely broken down despite the Sino-US rivalry,” said Zhan, who specializes in areas including capital markets and US sanctions compliance.
“In implementation, both parties could easily clash over some technical details, so uncertainty remains.”
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