Washington-Beijing audit deal a boon for US-listed Chinese firms

HONG KONG • Beijing and Washington took a big step on Friday towards ending a dispute that threatened to boot Chinese companies, including Alibaba, from US bourses, signing a pact to let American regulators vet accounting firms in China and Hong Kong.

US regulators have for more than a decade demanded access to audit papers of US-listed Chinese companies, but Beijing has been reluctant to let overseas regulators inspect its accounting firms, citing national security concerns.

The deal marks a partial thaw in US-China relations amid tensions over Taiwan and will come as a relief for hundreds of Chinese companies, investors and US exchanges, giving China the chance to retain access to the world's deepest capital markets - if it works in practice.

If not, some 200 Chinese firms could be banned from US bourses, Securities and Exchange Commission (SEC) chairman Gary Gensler said. The agency has previously identified Alibaba Group, JD.Com, and NIO as among those at risk.

Announcing the deal, US officials struck a cautious note, warning it was just a first step, and that their view on China's compliance would be determined by whether they are able to conduct their inspections unobstructed, as the deal promises.

"Make no mistake: The proof will be in the pudding," said Mr Gensler. "This agreement will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China."

Still, the Public Company Accounting Oversight Board (PCAOB), which oversees audits of US-listed companies, said it was the most detailed deal the regulator has ever reached with China.

The China Securities Regulatory Commission said the agreement was an important step towards addressing the auditing issue and benefited investors, companies and both countries.

In principle, the deal appears to give the PCAOB what it has long-demanded - full access to Chinese audit working papers with no redactions, the right to take testimony from audit company staff in China, and sole discretion to select which companies it inspects.

US officials said they had notified the selected firms on Friday and expected to be in Hong Kong for the inspections by the middle of next month.

The long-running dispute came to a head in 2020, when the US passed the Holding Foreign Companies Accountable Act, which forced the SEC to take a tougher hand with US-listed Chinese companies.

The SEC finalised rules implementing the law in December, starting the clock ticking on potential Chinese company delistings.

"We have to hold China to the same standards as every other company and every other country that lists on American exchanges," US Republican Senator John Kennedy, a key architect of the 2020 law, said in a statement on Friday.

US rules stipulate that if China is not found to be in compliance, its companies could be barred from American exchanges by early 2024, but that deadline could be brought forward.

Mr Gensler said Chinese companies still faced delisting if the inspections were obstructed.

REUTERS