China’s regulator is trying to avoid US delistings of Chinese companies

A Chinese national flag flies outside the China Securities Regulatory Commission (CSRC) building on Financial Street in Beijing, China, July 9, 2021. REUTERS / Tingshu Wang

HONG KONG, November 25 (Reuters) – Chinese authorities are working with US counterparts to prevent Chinese companies from being delisted from US stock exchanges, a Chinese regulatory official said on Thursday, while a long-running dispute over audit standards continues to rumble.

US authorities are moving towards firing foreign companies off US stock exchanges if their audits do not meet US standards.

The Public Company Accounting Oversight Board (PCAOB) and US decision – makers have long complained about the lack of access to audit papers for US listed Chinese companies. Referring to national security concerns, the Chinese authorities have been reluctant to allow foreign regulators to inspect working papers from local accounting firms.

“We do not believe that delisting Chinese companies from the US market is a good thing either for companies, for global investors or for Sino-US relations,” said Shen Bing, director general of the China Securities Regulatory Commission’s Department of International Affairs. told a conference in Hong Kong.

“We are working very hard to solve the audit problem with US counterparties, communication is currently smooth and open. There is a risk of delisting these companies, but we are working very hard to prevent that from happening,” he added.

In December 2020, during the last weeks of his administration, President Donald Trump signed a law aimed at removing foreign companies from US stock exchanges if they do not comply with US auditing standards for three years in a row.

A map on the organization’s website showed China as the only jurisdiction that denied PCAOB “necessary access to oversight”.

At the same conference, Ashley Alder, chief executive of the Hong Kong Securities and Futures Commission, said he feared tensions between China and the United States could hinder a solution.

“Sometimes politics can interrupt technical solutions that are sensible and achievable, and I capture a degree of political stance in the American establishment that does not necessarily contribute to a better outcome.”

Hong Kong has previously faced similar problems with access to mainland China’s audit working papers, but Alder said that SFC’s relationship with the CSRC and an agreement from 2019 had helped resolve these.

Hong Kong has benefited from the Sino-US shot, as a number of U.S. listed Chinese companies have made secondary listings in the city in recent years, in part as a backup in case the companies are removed from the Nasdaq or NYSE, market participants say.

The Hong Kong Stock Exchange confirmed last week that it would continue with rule changes to make it easier for foreign-listed Chinese companies to conduct secondary listings, and for companies to change a Hong Kong secondary listing to a primary listing.

Reporting by Scott Murcoch; Author by Alun John; Editing Muralikumar Anantharaman & Simon Cameron-Moore

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