China-U.S. audit dispute outcome depends on wisdom of both parties – CSRC

FILE PHOTO: Chinese and U.S. flags flutter near The Bund in Shanghai
FILE PHOTO: Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019. REUTERS/Aly Song

March 31, 2022

By Jason Xue and Xie Yu

SHANGHAI/Hong Kong (Reuters) – China’s securities regulator said on Thursday both China and the United States have a willingness to solve their audit disputes, and the outcome depends on the wisdom of both parties.

The China Securities Regulatory Commission (CSRC) said whether Chinese companies listed in the United States are delisted in the future depends on the progress and results of the audit and regulatory cooperation between the two countries.

This came as the U.S. Securities and Exchange Commission (SEC) on Wednesday added five companies, including iQIYI Inc and Baidu Inc, into the latest batch of stocks facing delisting risks from the United States.

Baidu and its streaming affiliate iQIYI said on Thursday they have been actively exploring possible solutions, and they will continue to comply with applicable laws and regulations in both China and the United States.

The CSRC chairman Yi Huiman and his counterpart, U.S. Securities and Exchange Commission chair Gary Gensler, have held three virtual meetings since last August to discuss a resolution for the legacy issues in coordinated audit of companies, said a statement issued on CSRC’s website.

China has also held multiple rounds of frank, professional and productive meetings with the Public Company Accounting Oversight Board, the statement said.

The process is smooth in general and will continue. Both sides are willing to solve the disagreements and problems. “But the outcome will depend on wisdom and the original will of both sides,” it said.

The statement came after Gensler pushed back speculation of an imminent deal to be reached between the two sides that would avoid any trading suspension of around 200 Chinese companies listed in the United States.

Gensler said U.S. law gives him little room for compromise, during an interview with Bloomberg on Tuesday, and said the result of the negotiations is “up to the Chinese authorities”.

The long-running Sino-U.S. audit stand-off has put hundreds of billions of dollars of U.S. investments in Chinese companies at stake.

Washington is demanding complete access to the audit papers for U.S.-listed Chinese companies but Beijing bars foreign inspection of local accounting firms’ work.

In December, the U.S. SEC finalised rules to delist Chinese companies under the Holding Foreign Companies Accountable Act (HFCAA), and said it had identified 273 companies that were at risk, without naming them.

By Thursday, 11 U.S. listed Chinese companies had been identified by the U.S. regulator as carrying risks under the HFCAA.

“The U.S. side has made a case that it is treating everybody equally with its Holding Foreign Companies Accountable Act. And it is becoming increasingly clear that China is unlikely to ask for an exception,” said Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co.

Hong Kong shares of Baidu closed down 3.2% on Thursday, while the Hang Seng Tech Index lost 1.4%.

(Reporting by Shanghai Newsroom; Editing by Jacqueline Wong and Raju Gopalakrishnan)