The change could allow US regulators to see audit reports from Chinese companies listed in New York. This could end a dispute between the two countries that has threatened more than 200 Chinese companies with a possible delisting from the New York Stock Exchange or Nasdaq.
In the new draft rule released on Saturday, the regulator removed the requirement that the scrutiny of overseas-listed Chinese companies’ financial documents be “carried out primarily by Chinese regulators.”
Instead, it says that inspections are to be “carried out through cross-border regulatory cooperation” and the CSRC will provide support during the process.
The CSRC also said all foreign-listed companies will be responsible for properly managing confidential and sensitive information and protecting national security.
The draft rule was Released for public consultation by April 17.
“The revision could potentially offer a long-term solution to the China-US auditing dispute and reduce the risk of Chinese companies being delisted from US exchanges,” wrote Ken Cheung Kin Tai, chief Asian FX strategist at Mizuho Bank, in a note on Monday.
US regulators have long complained about the lack of access to Chinese companies’ books. But Beijing has resisted such a scrutiny, citing national security concerns. It requires foreign-traded companies to conduct their audits in mainland China, where they cannot be audited by foreign agencies.
In late 2020, the Holding Foreign Companies Accountable Act was enacted, benefiting the Securities and Exchange Commission Power to kick foreign companies off Wall Street if they don’t allow US regulators to review their audits for three years.
Chinese tech stocks rebound
The Nasdaq Golden Dragon China Index, a popular index that tracks more than 90 Chinese companies traded in the United States, lost a quarter of its value in four trading sessions last month.
markets welcome the CSRC change, with Chinese tech stocks rallying in Hong Kong.
“The overhang of US-listed Chinese companies has been partially reduced,” said Mike Shiao, chief investment officer for Asia ex-Japan at Invesco.