SEC may delist “China’s Google” if audit requirements are not met

  • The SEC included Baidu on a tentative list of companies that have failed US auditing requirements.
  • If these companies continue to fail to comply with these requirements, they may be required to delist from the US.
  • Beijing has rejected US demands to inspect the audit books of its US-listed companies.

The Securities and Exchange Commission (SEC) on Wednesday warned Chinese search giant Baidu that it could be removed from US stock exchanges if it fails to pass audit requirements.

The SEC did this by adding Baidu to a tentative watch list of foreign companies that have not granted US authorities full access to their auditing books.

Google is among several western tech sites blocked by China’s ‘Great Firewall’. Baidu’s dominance of online search in China has earned it the nickname “China’s Google.” It is the largest Chinese tech company by market value on the SEC’s preliminary list, which also includes the Chinese version of Twitter, Weibo and online video site iQiyi. These Chinese tech companies now have 15 business days to appeal the SEC’s decision.

Companies that have been conclusively identified by the SEC must submit to audits by the US Public Accounting Oversight Board (PCAOB) for three consecutive years. If they don’t comply, they could be thrown off US stock exchanges entirely.

Wednesday’s SEC decision exacerbates an ongoing row between US and Chinese regulators over giving US officials full access to the audit data of US-listed Chinese companies.

The watch list was compiled based on the 2020 Holding Foreign Companies Accountable Act, which requires listed companies to demonstrate that they are not owned or controlled by foreign governments. Although the legislation applies to companies from all countries, their sponsors have made it clear that they are targeting Chinese companies. Last year, the NYSE delisted China Unicom Hong Kong, China Mobile and China Telecom for non-compliance.

Earlier this month, Securities and Exchange Commission Chairman Gary Gensler said the SEC was looking at another 248 Chinese companies with a market capitalization of around $2.1 trillion.

If China doesn’t grant access, Gensler said, those companies would be blocked from trading in the United States “possibly as early as 2024.”

Even if Beijing rejects these demands citing national security concerns, it has signaled in recent weeks that it is ready to find a compromise.

According to Reuters, Chinese authorities have asked several big tech companies to prepare for further audit disclosures to US authorities in order to remain listed in America. However, the PCAOB told Reuters that they were still unsure if full access would be granted.

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