September 29, 2022

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FILE PHOTO: A trader enters the floor of the New York Stock Exchange

Analysts say Chinese delisting from NYSE paves way for US audit deal

Five state-owned companies, including oil giant Sinopec and China Life Insurance, whose audits were scrutinized by the US securities regulator, said on Friday they would voluntarily withdraw from the NYSE.

The U.S. Securities and Exchange Commission (SEC) in May classified five and more companies as failing to meet U.S. auditing standards, and the delisting indicates that China may compromise on giving U.S. accountants access to the accounts of listed private Chinese companies. In America, some analysts say.

Beijing and Washington are in talks to end a dispute that threatens to delist hundreds of Chinese companies from the New York list if China fails to comply with Washington’s demand for full access to the books of US-listed Chinese companies.

“State-owned companies not being listed in the U.S. allows the Chinese to compromise negotiations,” said a Hong Kong capital markets lawyer, who declined to be named because of the sensitivity of the case.

“They were more concerned with accessing the accounts of state-owned enterprises,” the lawyer said, referring to officials in Beijing. “Many private companies are not believed to have sensitive data like SOEs.”

However, some observers were less optimistic about the effect of the repeal.

“By taking state-owned enterprises off the table, it theoretically leaves more room to make some concessions to the Chinese,” said Paul Gillis, a retired professor at Peking University’s Guanghua School of Management.

“But that’s the general political situation between the U.S. and China, and I think it’s going to be difficult to come to an agreement.”

Full access

For years, US regulators have asked for full access to audit work documents of Chinese companies listed in New York, but Chinese officials have pushed back on the request on national security grounds.

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In May, a senior SEC official said China may agree to voluntarily list companies deemed “too sensitive” to meet U.S. requirements, forcing other companies and accounting firms to submit to the U.S. inspector general. and investigative procedures and potential trade barriers avoided.

The China Securities Regulatory Commission did not respond to a query on Monday afternoon.

More than 270 Chinese companies have been identified as being at risk of a trade ban because the US Public Company Accounting Oversight Board (PCAOB), which oversees audits of US-listed companies, has decided that their accounting work cannot be fully accessed. .

Concerns about the future of these companies on New York stock exchanges have grown in recent months as managers of global funds that own U.S.-listed Chinese stocks increasingly switch to their Hong Kong-traded stocks.

Alibaba Group Holding announced two weeks ago in Hong Kong that it would switch its secondary listing to a dual primary listing, which analysts say will make it easier for the e-commerce giant to go forward if it ever delists in the United States.

“For US-listed private companies, whether they are given more permission to work with the PCAOB depends on the sensitivity of the data in their audit documents,” said Weiheng Chen, president of Greater China. Wilson Soncini Law Firm.

Private companies that hold large amounts of geographic data and data that tracks the location, movements and social behavior of individuals and organizations are considered sensitive, Chen said.

After the listing of the five SOEs, only two state-owned companies will list in the US – China Eastern Airlines and China Southern Airlines.

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“China should be encouraged to work with the US SEC to ensure that Chinese companies without sensitive information are not cut off from US capital markets,” Jefferies analysts wrote.