U.S., Chinese regulators in talks for audit deal -sources

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Chinese and U.S. flags flutter outside the building of an American company in Beijing, China January 21, 2021. REUTERS/Tingshu Wang

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HONG KONG, May 6 (Reuters) – U.S. and Chinese regulatory officials are in talks to settle a long-running dispute over the auditing compliance of U.S.-listed Chinese firms, three people briefed on the matter told Reuters.

The standoff, if not resolved, could see Chinese firms kicked off New York bourses.

The U.S. Public Company Accounting Oversight Board (PCAOB) denied an earlier Reuters report that said a team from the agency had arrived in Beijing for talks.

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This week the U.S. Securities and Exchange Commission (SEC) added over 80 firms, including e-commerce giant JD.com (9618.HK) and China Petroleum & Chemical Corp (600028.SS) to the list of companies facing possible expulsion. read more

The talks between officials from the PCAOB and their counterparts at the China Securities Regulatory Commission (CSRC) can be described as “late stage” after China made concessions in recent months, the people said.

But a PCAOB spokesperson said, “Recent reports that PCAOB officials are currently in China, or that PCAOB officials were in China earlier this year to conduct face-to-face negotiations, are untrue. The PCAOB has not sent any personnel to China since 2017.”

He said the board continues to engage with the Chinese authorities but “speculation about a final agreement remains premature.” As a result, the PCAOB is planning “for various scenarios”.

The CSRC on Friday did not respond directly on the status of discussions. It referred Reuters to official statements from both sides but did not specify which statements.

The sources asked not to be identified due to the sensitivity of the issue.

Authorities in China have long been reluctant to let overseas regulators inspect local accounting firms, citing national security concerns.

But in a key concession, Chinese regulators last month proposed revising confidentiality rules for offshore listings and scrapping requirements that on-site inspections of overseas-listed Chinese firms be conducted mainly by domestic regulators. read more

Sources told Reuters last month that a preliminary framework for audit supervision cooperation between the two countries has been formed. read more

The spat over audit oversight of New York-listed Chinese companies, simmering for more than a decade, came to a head in December when the SEC finalised rules to delist Chinese companies under the Holding Foreign Companies Accountable Act. It said there were 273 companies at risk but did not name them.

As of Friday, the PCAOB has identified 128 Chinese firms as at risk of being delisted.

The issue has been a major factor dragging on American depositary receipts (ADRs) issued by Chinese firms, with the Nasdaq Golden Dragon China Index tumbling 57% over the past 12 months.

Goldman Sachs estimated in March that U.S. institutional investors held around $200 billion worth of Chinese ADRs.

In addition to the concessions by Chinese regulators, there have been other signs that a deal is in the offing.

In late March, sources said the CSRC asked some of the country’s U.S.-listed firms, including Alibaba Group Holding Ltd (9988.HK), Baidu Inc (9888.HK) and JD.com, to prepare for more audit disclosures. Late last month, Fang Xinghai, the CSRC’s vice chairman said he expected a deal in the near future.

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Reporting by Xie Yu; Additional reporting by Katanga Johnson in Washington, Selena Li in Hong Kong and Jing Xu in Beijing; Editing by Edwina Gibbs and William Mallard

Our Standards: The Thomson Reuters Trust Principles.

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