NYSE Shutdown Indicates Beijing May Be Willing To Compromise Over US Audit Disputes Analysts

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

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HONG KONG, Aug. 15 (Reuters) – The move to delist five Chinese state-owned enterprises (SOEs) from the New York Stock Exchange (NYSE) indicates Beijing may be willing to compromise to sign a control agreement with the United States. States and put an end to a more than ten-year-old dispute, analysts and advisers said Monday.

The five state-owned companies, including oil company Sinopec (600028.SS) and China Life Insurance (601628.SS), whose audits were examined by the U.S. securities regulator, said Friday they would voluntarily opt out of the NYSE. read more

The U.S. Securities and Exchange Commission (SEC) in May had flagged the five and many other companies as failing to meet U.S. auditing standards, and the takedown signals China could compromise by allowing U.S. accountants access to the accounts of private Chinese companies that in the United States are listed, some analysts said.

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Beijing and Washington are in talks to end a dispute that threatened hundreds of Chinese companies from their New York stock exchange if China failed to comply with Washington’s demand for full access to the books of US-listed Chinese companies. businesses.

“The fact that the state-owned companies are not listed in the US allows the Chinese side to compromise in the negotiations,” said a Hong Kong capital markets lawyer, who declined to be named due to the sensitivity of the case.

“They were more concerned about access to state-owned enterprises’ accounts,” the lawyer said, referring to Beijing authorities. “Many private companies are thought to have less sensitive data than state-owned companies.”

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

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

“But I think given the general political environment between the US and China as it is, it’s difficult to come to a deal.”

FULL ACCESS

US regulators have been demanding full access to the audit working papers of New York-listed Chinese companies for years, but Chinese authorities have pushed back for national security reasons.

In May, an SEC official said China could agree to the voluntary elimination of companies it considers “too sensitive” to comply with US requirements, which would ensure that the remaining companies and audit firms could comply with US requirements. inspection and investigation processes and potential trade bans. .

Since then, however, the US Public Company Accounting Oversight Board (PCAOB), which regulates audits of US-listed companies and is overseen by the SEC, has said that delisting companies would not bring China into compliance because US rules require it to agency have retroactive access to corporate audit data.

The PCAOB’s position has not changed, a PCAOB spokesperson said Monday. An SEC spokesperson did not immediately respond to a request for comment.

The China Securities Regulatory Commission did not respond to a question on Monday afternoon.

More than 270 Chinese companies are at risk of trade bans, with the PCAOB finding that it did not have full access to their audit documents.

Concerns about the future of these companies on the New York stock exchanges have mounted in recent months, with global fund managers holding US-listed Chinese stocks steadily shifting to their Hong Kong-traded counterparts. read more

Alibaba Group Holding announced two weeks ago that it would switch its secondary listing in Hong Kong to a dual primary listing, which analysts say would make it easier in the future should the e-commerce giant ever want to delist in the United States.

“As for private companies listed in the US, it will likely depend on the sensitivity of the data in their audit documents whether they are allowed more discretion to cooperate with the PCAOB,” said Weiheng Chen, head of Greater China Practice at law firm Wilson Sonsini. .

Private companies that own large amounts of geographic data and data that tracks the location, movements and social behavior of individuals and companies are likely to be considered sensitive, Chen said.

After the elimination of the five state-owned companies, only two state-owned companies remain in the United States: China Eastern Airlines (600115.SS) and China Southern Airlines (600029.SS).

“China must be motivated to work with the US SEC to ensure that Chinese companies without sensitive information are not locked out of US capital markets,” Jefferies analysts wrote.

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Reporting by Scott Murdoch, Kane Wu, Xie Yu and Samuel Shen; Editing by Sumeet Chatterjee, David Holmes and Marguerita Choy

Our Standards: The Thomson Reuters Trust Principles.

Scott Murdoch

Thomson Reuters

Scott Murdoch has been a journalist for over two decades, working for Thomson Reuters and News Corp in Australia. He has specialized in financial journalism for most of his career, covering equity and debt capital markets across Asia, based in Hong Kong.

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