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The decoupling of the US and China is likely to speed up as American lawmakers wish to bring its auditing rules into force as early as 2023. The audit issue of US-listed Chinese firms has become a major point of contention between Beijing and Washington DC, and 150 Chinese companies are facing a delisting of their shares from US exchanges.
The US Securities and Exchange Commission is maintaining a list of companies it wants to delist, and it roughly covers 60% of all Chinese companies that trade in the US. This figure represents approximately $1.7 tn of market capitalization.
Status of the US-China audit issue
Companies listed in the US are required to have their auditors inspected by an oversight board appointed by the SEC. The recent law, Holding Foreign Companies Accountable Act of 2020, states that companies that fail to comply with audit rules for three fiscal years starting December 18, 2020, will be delisted. However, China is not ready to budge.
The US has been adding Chinese firms to its list of companies flagged for not following the audit rules. The US SEC and China Securities Regulatory Commission (CSRC) have engaged in talks in the past, but any concrete outcome is still not in sight.
On the other hand, China has been urging companies that handle sensitive data to delist from the US. Car hailing service Didi voluntarily delisted from the New York Stock Exchange on Friday, following a vote by its shareholders. The Public Company Accounting Oversight Board (PCAOB), appointed by the SEC, previously tried inspecting a Chinese audit firm in 2016 but was unsuccessful as Chinese authorities withheld and redacted information.
“PCAOB must be able to access audit work papers from all, not some, China-based issuers and their registered public accounting firms, as well as conduct complete inspections and investigations in China and Hong Kong,” said YJ Fischer, director of the SEC’s Office of International Affairs.
Incidentally, the US Congress is united in taking a hardline approach against China and President Joe Biden is expected to sign the final bill, which will push Chinese firms out of the US as early as 2023. The uncertainty has pushed new IPOs by Chinese firms on the fringes, with only five listings in the US since July 2021.
Chinese firms facing a delisting, as well as IPO-bound companies, are exploring other avenues to raise capital due to geopolitical uncertainties. Hong Kong is the obvious choice due to its significance as an offshore market for mainland firms, but some companies are also exploring listing in Singapore.
