The U.S. will audit Chinese concept stocks, and Internet giants will be the first batch of audit manuscripts to be checked



 [Global Times reporter Ni Hao] According to the agreement between China and the United States on the audit of Chinese stocks at the end of August, the China Securities Regulatory Commission will arrange for Chinese companies listed in the United States and their accounting firms to transfer their audit papers and other data from the mainland to Hong Kong was inspected by the US in mid-September. The "Foreign Company Accountability Act" promulgated by the United States at the end of 2020 stipulates that if Chinese concept stocks listed in the United States fail to submit the reports required by the American Public Company Accounting Oversight Board (PCAOB) for three consecutive years, the United States Securities and Exchange Commission (SEC) The right to delist it from U.S. exchanges. More than 160 Chinese companies have so far been identified by the SEC as not complying with U.S. audit rules, including Chinese internet giants Alibaba, and Pinduoduo. According to the website of the Securities Regulatory Commission, on September 14, another Chinese concept stock company was included in the “pre-delisting” list. The cooperation between China and the United States in auditing supervision is considered to be an important turning point for Chinese concept stocks listed in the United States.

According to a report by the U.S. “Wall Street Journal” on the 16th, SEC Chairman Gary Gensler disclosed that the staff of the U.S. PCAOB is expected to begin examining the audit papers of U.S.-listed Chinese concept stocks on September 19. Gensler told a Senate Banking Committee hearing that the entire process would take eight to 10 weeks, or the results of the inspections could be available in early December 2022. He also said that Chinese regulators said they would abide by the terms of the agreement.


  Hong Kong's "South China Morning Post" said in a report on the 15th that staff from the PCAOB will arrive soon. The source also revealed that before these staff members can start audit inspections, they need to undergo a three-day hotel quarantine and a subsequent four-day home medical monitoring in accordance with Hong Kong's regulations. As of the press time of the Global Times on the 18th, there was no news that PCAOB staff had arrived in Hong Kong.


  The "South China Morning Post" reported on the 15th that two of the world's four largest accounting firms: PricewaterhouseCoopers and KPMG have been notified that PCAOB has selected them for several audit clients (China Concept Stock Company) checking. And the two companies have prepared the audit materials to be provided in paper and electronic versions. The source also revealed that all audit records have been filed in accordance with PCAOB standards and auditors are ready to be interviewed at PCAOB request. Two other big four accounting firms, Deloitte and Ernst & Young, have not yet been notified by the PCAOB, but are expected to receive invitations soon.


  According to previous foreign media reports, U.S. regulators have selected Alibaba, NetEase, Baidu, and Yum China as the first batch of Chinese stock companies to be inspected for audit papers.


  On the evening of August 26, the China Securities Regulatory Commission and the Ministry of Finance officially announced that they signed an audit supervision cooperation agreement with PCAOB, and made it clear that relevant cooperation will be launched in the near future. According to a statement released by the SEC on the same day, PCAOB staff will start work in Hong Kong in mid-September.


  According to PCAOB data, the Big Four accounting firms provided audit services for more than 130 of the 168 mainland Chinese companies listed in the United States, accounting for more than 78% of the total. In total, about 168 U.S.-listed Chinese companies were audited by 15 PCAOB-registered Hong Kong and mainland accounting firms as of June. The companies, which have a combined market capitalization of $1.5 trillion, will be delisted from U.S. exchanges under the Foreign Company Accountability Act if they do not allow the PCAOB to review their audit records for three consecutive years.


  The probability of delisting of Chinese concept stocks has decreased


  The China Securities Regulatory Commission pointed out in a news release on the evening of August 26 that in the next step, China and the United States will cooperate with relevant accounting firms to carry out daily inspections and investigations in accordance with the cooperation agreement, and make an objective evaluation of the effect of cooperation. If the follow-up cooperation can meet their respective regulatory needs, it is expected to solve the audit and supervision problems of Chinese concept stocks, thereby avoiding passive delisting from the United States.


  After the Sino-US agreement was reached, Goldman Sachs believes that the probability of Chinese concept stocks being forced to delist from the United States has dropped from 95% in March to 50%. If the delisting risk is completely eliminated, it may drive the price-earnings ratio of Chinese concept stocks to increase by 11%. . The Wall Street Journal believes the deal, reached after a decade-long standoff between Chinese and U.S. regulators, opens a way to avoid the forced delisting of about 200 Chinese companies from U.S. exchanges in early 2024.

The South China Morning Post reported that Drew Bernstein, co-chairman of New York-based McKay Asia, said that if the first round of audit inspections in Hong Kong goes well, it should encourage more Chinese companies to U.S. seeks listing. "I believe we will see a large backlog of Chinese companies entering the market in 2023," he said.


  Chinese concept stocks are the common interests of China and the United States


  Dong Shaopeng, a senior researcher at the Chongyang Institute of Financial Studies at Renmin University of China, told the Global Times reporter on the 18th that according to the information disclosed so far, the PCAOB is obviously ready for the upcoming inspection work, and the Chinese side will follow the agreement reached by the two sides last month. , support and cooperate under the principle of reciprocity and mutual benefit.


  Dong Shaopeng believes that the PCAOB may organize some experienced staff, or focus on checking some companies, or conduct spot checks on some Chinese concept stocks. China and the United States have common interests in the listing of Chinese stocks in the United States. It is hoped that the PCAOB inspection work will abide by the agreement reached by the two parties and abide by the laws and regulations of the Chinese side. However, Dong Shaopeng also believes that the confrontation between the United States is relatively serious. He hopes that the inspection work of the PCAOB in the United States will adhere to the principle of cooperation, abide by the laws of both sides, and take the protection of investors as the starting point to serve the fairness and justice of the market, and not to mix anyone with politics. factor.


  As the United States has been putting pressure on Chinese companies in the capital market for some time, many Chinese concept stocks have achieved or are seeking secondary listings or dual primary listings in Hong Kong to gradually get rid of their dependence on the US capital market. Some large state-owned enterprises chose to delist from the US due to their small transaction volume. On the evening of August 12, China Life, Sinopec, PetroChina, Aluminum Corporation of China, and Shanghai Petrochemical collectively issued an announcement to delist American depositary shares from the New York Stock Exchange. Prior to this, China's three major operators have been delisted from the United States. The market believes that the return of Chinese stocks and Hong Kong, which is an international financial center, has become a trend, and some large state-owned enterprises are delisted from the United States, which can also avoid possible data security risks.


  According to data from market institutions, as of August, the total amount of funds raised by IPO channels in the United States this year was only US$5.1 billion, far below the average level of about US$33 billion in the same period in the past 20 years. In the first half of 2021, a total of 37 Chinese concept stocks have IPOs in U.S. stocks, compared with only 3 in the same period in 2022.


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