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Alibaba, Baidu, JD.com and several other Chinese companies listed in the US heaved a sigh of relief on Friday after Washington and Beijing reached an initial agreement on the contentious audit issue. The two countries have signed a pact which will allow US regulators to investigate accounting firms in China and Hong Kong.
China tech stocks rallied after reports emerged that Beijing and Washington were close to reaching a deal. The US had demanded that Chinese companies and their auditors submit their financial audits for review every three years to the Public Company Accounting and Oversight Board, an audit oversight firm.
Has the US-China audit issue truly ended?
The US-China audit issue is headed towards a close, relieving pressure off the over 200 Chinese companies and their investors. The NASDAQ Golden Dragon China Index, which tracks Chinese companies listed in the US, has declined over 30% in the past year. Stocks of Alibaba, NIO, JD.com, Pinduoduo and other China firms listed in the US jumped on the announcement published by the Securities and Exchange Commission.
“This agreement marks the first time we have received such detailed and specific commitments from China that they would allow PCAOB inspections and investigations meeting U.S. standards. The Chinese and we jointly agreed on the need for a framework,” said Gary Gensler, Chairperson of the US SEC.
The long-festering dispute had forced the US to threaten to boot Chinese companies from its exchanges. After almost a decade of pushing over the audit issue, the US has finally managed to get China to agree to its demand. However, the SEC was approaching the situation with caution and said that this was ‘merely a step in the process.’
“This agreement will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China,” said Gensler. If history is any indication, China had only partially allowed the WHO to investigate the origin of Covid-19, with several statements redacted from official documents.
As per the deal signed between the PCAOB, the China Securities Regulatory Commission (CSRC) and China’s finance ministry, PCAOB officials might arrive in Hong Kong as early as mid-September. This could potentially be the pilot for China’s acceptance of an investigation of its audit firms, based on which the SEC will chalk its further course of action.
