China’s ‘U-turn’ to prevent them from pulling their companies off Wall Street

Hong Kong (CNN Business) — China is extending an olive branch to the United States in a bid to prevent Chinese companies from being pushed out of Wall Street, the American stock market.

The China Securities Regulatory Commission (CSRC), the country’s top securities watchdog, has proposed changing a decade-old rule that prohibits Chinese companies from sharing sensitive data and financial information with regulators. foreign.

The amendment could allow US regulators to scrutinize the audit reports of Chinese companies listed in New York. That could end a dispute between the two countries that threatens more than 200 Chinese companies with possible expulsion from the New York Stock Exchange and Nasdaq.

In the new draft of the rule, published on Saturday, the regulator removed the requirement that the examination of financial documents of Chinese companies listed abroad must be “mainly carried out by Chinese regulatory agencies”.

Instead, it says the inspections will be “conducted through cross-border regulatory cooperation,” with the CSRC providing assistance during the process.

The CSRC also said that all foreign-listed companies will be responsible for properly managing confidential and sensitive information and protecting national security.

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The draft of the rule was issued for public consultation until April 17.

“The review could offer a long-term solution to disputes over the audit requirement between China and the US, reducing the risk of delisting Chinese companies from US stock exchanges,” wrote Ken Cheung Kin Tai, a strategist. head of foreign exchange for Asia at Mizuho Bank, in a note on Monday.

US regulators have long complained about a lack of access to Chinese companies’ books. But Beijing, citing national security concerns, has resisted such scrutiny. The country requires companies doing business abroad to conduct their audits in mainland China, where they cannot be scrutinized by foreign agencies.

In late 2020, the Foreign Companies Accountability Act was enacted, giving the Securities and Exchange Commission the power to kick foreign companies off Wall Street if they don’t allow US regulators to review their audits for three years in a row. .

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Tech stocks rally on Wall Street

Last month, the Securities and Exchange Commission named some Chinese companies that could be delisted from the United States for failing to meet those requirements, including Baidu and Yum China. The move sparked a sharp sell-off in Chinese shares as investors feared more companies could be listed.

The Nasdaq Golden Dragon China Index, a popular index that tracks more than 90 US-listed Chinese companies, lost a quarter of its value in four trading sessions last month.

Markets welcomed the CSRC amendment, with Chinese tech stocks rising in Hong Kong.

Tech giant Baidu soared 7.8%. Its US-listed shares ended up gaining more than 6% on Friday on rumors China was weighing giving US officials more access to Chinese audits.

Video-sharing site Bilibili soared 13%, while Alibaba and rose 3.7% and 7.7%, respectively.

“The surplus of US-listed Chinese companies was partially wiped out,” said Mike Shiao, Investment Director for Asia ex-Japan at Invesco.

Chinese authorities have been trying to calm investors’ nerves following the recent market crash. Last week, the CSRC said that its chairman, Yi Huiman, and SEC chairman Gary Gensler had held several meetings to discuss audit issues and that “good progress” had been made. Early last month, Chinese Vice Premier Liu He, one of President Xi Jinping’s top economic advisers, told a key government meeting that Beijing will continue to support Chinese companies that want to list abroad.

However, Gensler told Bloomberg last week that only full compliance with US audit inspections would allow Chinese companies to continue trading in New York markets.

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