Chinese regulators ask some US-listed firms to prepare for audit disclosures

Hong Kong/Beijing: Chinese regulators have asked some of the country’s US-listed firms, including Alibaba, Baidu and JD.com, to prepare for more audit disclosures, the sources said, adding that Beijing will ensure domestic companies remain listed in New York. forward efforts to do so.

It comes as China’s regulators are considering a proposal to allow their US counterparts to inspect audit working papers of some Chinese firms that do not collect sensitive data, two sources said.

As part of that move, the China Securities Regulatory Commission (CSRC) and other regulatory agencies summoned top internet companies including search engine leader Baidu Inc and e-commerce major JD.com Inc earlier this month, four sources said. told Reuters.

Other internet firms summoned by the regulator include Alibaba Group and Weibo Corp, two sources with direct knowledge of the matter said. E-retailer Pinduoduo Inc and gaming firm NetEdge Inc also participated in the meeting, one of them said.

They were asked to prepare audit documents for the 2021 fiscal year, taking into account requests for more disclosures from US regulators, said the sources, who declined to be named as they were not asked the details of the meeting. was not allowed to discuss.

Companies should better seek the advice of Chinese regulators if they are “unsure about anything” throughout the process, the first source said, which includes auditing and communications with US regulators.

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CSRC did not immediately respond to a request for comment.

Alibaba, Baidu, JD.com and Weibo did not immediately respond to requests for comment. Pinduoduo and NetEase also did not immediately provide comment.

The latest move by Chinese regulators suggests Beijing is willing to make some concessions to resolve the long-running Sino-US audit stand-off, which put hundreds of billions of dollars of US investment at stake in Chinese companies Is.

If the companies’ audit records are not available for their inspection for three consecutive years, US officials are moving towards removing Chinese companies from US stock exchanges.

risk removal

In December, the US Securities Exchange Commission (SEC) finalized rules for delisting Chinese companies under the Holding Foreign Companies Accountable Act (HFCAA), saying it had identified 273 companies that were at risk, their name. without taking

The SEC earlier this month named five of these companies, including KFC operator Yum China Holdings and biotech firm Beijin Ltd, that could face delisting.

Describing the SEC’s move as “normal procedure”, the CSRC said it was confident it would reach an agreement with US counterparts to resolve the dispute.

Three sources said Chinese regulators were in discussions with New York-listed domestic companies on more audit disclosures.

Washington has long sought full access to the books of US-listed Chinese companies, but Beijing, citing national security concerns, prohibits foreign inspection of working papers from local accounting firms.

A map on the website of the Public Company Accounting Oversight Board (PCAOB), an auditor oversight body tasked with helping keep publicly traded companies under control in the United States, identified China as the sole jurisdiction. which denied the organization “access required to conduct surveillance”. ,

Goldman Sachs estimated on March 11 that US institutional investors have invested about $200 billion in American depository receipts (ADRs) of Chinese companies.

The Nasdaq Golden Dragon China Index, which tracks Chinese companies traded on Wall Street, fell nearly 60% over the past 12 months.

In an effort to assuage investor fears, China’s Vice Premier Liu He said last week that talks between Chinese and US regulators on companies listed in the United States have made progress and the two sides are working on specific cooperation plans.

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