China has changed its audit privacy rules to stop US delisting

Beijing has amended its audit privacy law to prevent about 270 Chinese companies from listing on the U.S. exchange at a significant discount under pressure from Washington.

The China Securities Regulatory Commission, Beijing’s top financial watchdog, said on Saturday it would change privacy laws that bar foreign-listed companies from providing sensitive financial information to foreign regulators.

The CSRC says its existing rules, which were last updated in 2009, are outdated.

Trying to prevent New York from listing Chinese companies in 2024 is still Beijing’s most significant move. The Securities and Exchange Commission said last month that China’s largest companies, including Baidu and Yum China, were given three years to provide detailed audit documents, prompting a sharp sell-off in their shares.

There are about 270 Chinese companies listed in the United States with a combined market capitalization of more than t 2tn. The Nasdaq Golden Dragon China Index, which tracks blue-chip Chinese stocks, lost nearly half its value last year.

Beijing’s unusual policy change is expected to create a framework for U.S. regulators to gain access to the company’s audit files, and is China’s first major rule change to allow the disclosure of financial information outside the country. The Financial Times reported that Beijing’s regulators were discussing the proposals in March.

The latest rule, which is set for public consultation until April 17, repeals a requirement that inspections of the financial statements of foreign-listed Chinese companies be conducted primarily by Chinese regulators.

The changes will “facilitate cross-border regulatory cooperation, including joint inspections, to protect investors worldwide”, according to the CSRC.

This comes after months of negotiations between Chinese and US regulators over a long-running dispute over access to audits.

Chinese authorities are trying to boost investor confidence after a series of regulatory crackdowns and disastrous share sales – such as the Chinese ride-hailing app sister – pushed the world market.

The CSRC said its Chair e Human and SEC Chair Gary Gensler have held three meetings since August on “audit oversight co-operation” and have made “positive progress”.

However, US regulators have rejected the suggestion of an impending agreement that would halt the delisting countdown. Gensler said last week that only full compliance with a U.S. audit inspection would allow Chinese companies to continue trading in the New York market.

Geopolitical tensions between the United States and China, including Russia’s recent aggression in Ukraine, have raised fears that a compromise on audit access is unlikely. A Hong Kong finance executive who was close to some regulatory talks said listing Chinese companies was “a weapon of the United States in this larger fight.” He added: “The United States must be careful that if they continue to put pressure on China, they will hurt themselves.”

Under a rule issued in 2009, it is prohibited to share audit documents produced with foreign companies when listing foreign Chinese companies. This conflicts with the U.S. Holding Foreign Companies Accountable Act, passed in 2020, which requires Chinese and Hong Kong companies to allow the U.S. Public Company Accounting Oversight Board to conduct their audits.

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