Home Book trading China’s NYSE delisting could pave way for audit deal with US, analysts say

China’s NYSE delisting could pave way for audit deal with US, analysts say

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A trader enters the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 14, 2022. REUTERS/Brendan McDermid

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HONG KONG, Aug 15 (Reuters) – The decision to remove five Chinese state-owned enterprises from the New York Stock Exchange (NYSE) could pave the way for Beijing to strike an audit deal with the United States, ending a more than a decade-old dispute, analysts and advisers said Monday.

The five state-owned companies, including oil major Sinopec (600028.SS) and China Life Insurance (601628.SS), whose audits have been reviewed by the US securities regulator, said on Friday they would withdraw voluntarily of the NYSE listing. Read more

The U.S. Securities and Exchange Commission (SEC) had reported in May that the five and many others failed to meet U.S. auditing standards, and write-off signals that China could compromise by allowing U.S. auditors to access the accounts of Chinese private companies listed in the United States. , some analysts said.

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Beijing and Washington are in talks to end a dispute that threatened to kick hundreds of Chinese companies off their New York listings if China did not comply with Washington’s demand for full access to the companies’ books Chinese companies listed in the United States.

“The fact that state-owned companies are not listed in the United States allows the Chinese side to compromise in negotiations,” said a Hong Kong capital markets lawyer, declining to be named due to the sensitivity of the issue.

“They were more worried about gaining access to public company accounts,” the lawyer said, referring to authorities in Beijing. “It is believed that many private companies do not have such sensitive data as state-owned companies.”

Some observers, however, were less optimistic about the impact of radiation.

“By taking state-owned companies off the table, it would, in theory, give the Chinese more leeway to make concessions,” said Paul Gillis, a retired professor at Peking University’s Guanghua School of Management.

“But I think the overall political environment between the United States and China being what it is, it’s difficult to come to an agreement.”

FULL ACCESS

U.S. regulators have for years demanded full access to audit working papers of New York-listed Chinese companies, but Chinese authorities have denied the request on national security grounds.

In May, a senior SEC official said China could agree to voluntary delisting of companies deemed “too sensitive” to comply with US requirements, which would ensure that the rest of the companies and law firms audit could comply with US inspection and investigation processes and avoid potential exchanges. prohibitions.

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

More than 270 Chinese companies are identified as at risk of being banned from trading, the US Public Company Accounting Oversight Board (PCAOB), which oversees audits of US-listed companies, has ruled it does not have access comprehensive to their audit work.

Concerns about the companies’ future on New York stock exchanges have swirled in recent months, with global fund managers holding U.S.-listed Chinese stocks gradually shifting to their Hong Kong-traded counterparts. Read more

Alibaba Group Holding announced a fortnight ago that it would change its secondary listing in Hong Kong to a dual primary listing, which analysts said would make it easier in the future should the e-commerce giant ever want to delist in the United States.

“As for private companies listed in the United States, whether they may have more leeway to cooperate with the PCAOB will likely depend on the sensitivity of the data in their audit documents,” said Weiheng Chen, head of the audit. of Greater China Practice within the law firm Wilson Sonsini. .

Private companies with large amounts of geographic data and data that tracks the location, movements and social behaviors of individuals and businesses are more likely to be considered sensitive, Chen said.

After the delisting of the five SOEs, only two SOEs will remain listed in the US – China Eastern Airlines (600115.SS) and China Southern Airlines (600029.SS).

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

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Reporting by Scott Murdoch, Kane Wu, Xie Yu and Samuel Shen; Editing by Sumeet Chatterjee and David Holmes

Our standards: The Thomson Reuters Trust Principles.

scott murdoch

Thomson Reuters

Scott Murdoch has been a journalist for over two decades and works for Thomson Reuters and News Corp in Australia. He has specialized in financial journalism for most of his career and covers equity and debt markets across Asia from Hong Kong.