October 3, 2022

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NYSE writedowns suggest Beijing may be willing to compromise on US review dispute analysts

NYSE writedowns suggest Beijing may be willing to compromise on US review dispute analysts

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

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HONG KONG (Reuters) – The move to delist five Chinese state-owned companies from the New York Stock Exchange (NYSE) suggests that Beijing may be willing to make concessions to strike an audit deal with the United States that analysts and advisors said on Monday would end more than a decade of dispute. .

The five state-owned enterprises including the major oil company Sinopec (600028.SS) China Life Insurance (601628.SS), whose audit was scrutinized by the US Securities Regulatory Authority, said on Friday it was voluntarily removing it from the New York Stock Exchange. Read more

The US Securities and Exchange Commission (SEC) in May identified the five companies and several others as failing to meet US auditing standards, delisting signals that China could waive over allowing US auditors to access the accounts of private Chinese companies listed on the United State. states, some analysts said.

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

“The presence of unlisted SOEs in the United States allows the Chinese side to make concessions in the negotiations,” said a Hong Kong capital markets attorney, who declined to be named due to the sensitivity of the matter.

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“They were more concerned about access to the accounts of state-owned companies,” the lawyer said, referring to the authorities in Beijing. “Many private companies are not believed to have sensitive data like state-owned companies.”

However, some observers were less optimistic about the impact of the liftings.

“By taking SOEs off the table, in theory, it would give more room for the Chinese to make some concessions,” said Paul Gillis, a retired professor at Peking University’s Guanghua School of Management.

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

full access

US regulators have been demanding full access to audit worksheets for Chinese companies listed in New York for years, but Chinese authorities have backed down on national security grounds.

In May, a Securities and Exchange Commission official said China could agree to voluntary delisting of companies deemed “too sensitive” to comply with US requirements, ensuring that other companies and audit firms can meet US inspections and investigations, and avoid potential trade bans. . .

Since then, however, the US Public Accounting Oversight Board (PCAOB), which regulates audits of US listed companies and is overseen by the Securities and Exchange Commission, has said delisting companies will not make China comply because US rules require that The agency does this. Retroactive access to company audit records.

A PCAOB spokesperson said Monday that the PCAOB’s position on the matter has not changed. A spokesman for the Securities and Exchange Commission did not immediately respond to a request for comment.

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The China Securities Regulatory Commission did not respond to an inquiry Monday afternoon.

More than 270 Chinese companies have been identified as at risk of a trading ban, with PCAOB reporting that they did not have full access to their audit papers.

Concerns about the future of those companies have grown on New York stock exchanges in recent months, as global fund managers who own US-listed Chinese stocks have steadily turned toward their peers trading in Hong Kong. Read more

Alibaba Group Holdings announced two weeks ago that it would convert its secondary Hong Kong listing to a primary dual listing, which analysts said would make it easier in the future if the e-commerce giant wanted to de-list in the United States.

“For private companies listed in the US, allowing them more discretion to cooperate with PCAOB will likely depend on the sensitivity of the data in their audit papers,” said Weiheng Chen, head of major China practices at law firm Wilson Sonsini. .

Chen said that private companies that hold large amounts of geographic data and data that tracks the location and social movements and behaviors of individuals and businesses are likely to be viewed as sensitive.

After the five state-owned companies are removed from the list, only two state-owned companies 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 Securities and Exchange Commission to ensure that Chinese companies that do not have sensitive information on US capital markets are not isolated,” Jefferies analysts wrote.

Additional reporting by Scott Murdoch, Ken Wu, Shi Yu and Samuel Shen; Editing by Sumit Chatterjee, David Holmes and Margarita Choi

Our criteria: Thomson Reuters Trust Principles.