China, US Reach Audit Deal to Mitigate Delisting of Chinese Stocks

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China, US Reach Audit Deal to Mitigate Delisting of Chinese Stocks

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The China Securities Regulatory Commission and the US Public Company Accounting Oversight Board (PCAOB) have inked an agreement for cooperation in regards to the inspection of audit documents of US-listed Chinese companies, as reported by Reuters on August 27. According to the agreement, the US may gain access to the audit working papers with the assistance of the Chinese regulator. The agreement also outlines the processing and use of sensitive data that may be involved in audit inspection and lays out guidelines for the handling of certain types of data, such as personal information. The agreement is expected to end the uncertainty felt by US-listed Chinese companies over being delisted from US exchanges and represents a breakthrough in cross-border audit oversight.

China has requested that audit papers be kept in the country due to concerns over state secrets and information security. Meanwhile, the US authority specified that Chinese stocks face the risk of being delisted in early 2024 if they do not comply with the PCAOB’s auditing standards requirements for three consecutive years. Since 2010, a total of 345 Chinese stocks have gone public in the US, raising USD76.4bn in offerings. As of August 27, 2022, there were 286 Chinese stocks listed in the US, with a total market capitalization of USD1.18tr. In July, Alibaba [BABA:US], a Chinese internet giant, was added to the US Securities and Exchange Commission’s (SEC) pre-delisting risk list. Under regulatory uncertainty, early in August, five Chinese state-owned companies, namely Sinopec [0386:HK], Aluminum Corporation of China [601600:CH], PetroChina [0857:HK], China Life Insurance [2628:HK], and Sinopec Shanghai Petrochemical [0338:HK], declared their intention to delist from the New York Stock Exchange (NYSE) in the US.

Sources:

https://www.reuters.com/markets/asia/china-us-agree-deal-audit-dispute-2022-08-26/

https://www.cnbc.com/2022/08/29/goldman-us-delisting-risk-for-chinese-adr-stocks-halves-after-deal.html

https://news.cnstock.com/news,yw-202208-4947111.htm

https://finance.sina.com.cn/china/2022-08-28/doc-imiziraw0036821.shtml

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