China may do an about-face to avoid its companies being ejected from Wall Street

The China Securities Regulatory Commission, the country’s top securities regulator, has proposed a change a decades-old rule that prohibits Chinese firms from sharing sensitive data and financial records Information from foreign supervisory authorities.

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

Last month, the Securities and Exchange Commission named a few Chinese companies that could be delisted by the United States for failing to meet those requirements, including baidu (BIDU) and Yum China (YUMC). The move sparked a sharp sell-off in Chinese stocks as investors feared more companies could be added to the list.

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.

Wall Street will sack three major Chinese telecom companies

markets welcome the CSRC change, with Chinese tech stocks rallying in Hong Kong.

tech giant baidu (BIDU) increased by 7.8%. Its US-traded shares rose more than 6% on Friday on rumors that China is considering giving US officials more access to Chinese audits.
Website for sharing videos bilibili (BILI) shot up 13% while Alibaba (BABA) and (JD) increased by 3.7% and 7.7% respectively.

“The overhang of US-listed Chinese companies has been partially reduced,” said Mike Shiao, chief investment officer for Asia ex-Japan at Invesco.

Chinese authorities have tried to calm investors’ nerves after the recent market crisis. Last week, the CSRC said its chairman Yi Huiman and SEC chairman Gary Gensler had held several meetings to discuss the audit issues and “good progress” had been made. Earlier last month, Chinese Vice Premier Liu He, one of President Xi Jinping’s top economic advisors, said at a key government meeting that Beijing will continue to support Chinese companies seeking to list overseas.
However, Gensler told Bloomberg last week that only full compliance with US audit inspections would allow Chinese companies to continue trading in the New York markets.

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