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China could backtrack to prevent its companies from being kicked off Wall Street

The China Securities Regulatory Commission, the country’s top securities watchdog, has proposed to amend a decade-old rule that prohibits Chinese companies from sharing sensitive and financial data information with foreign regulators.

The amendment could allow US regulators to inspect the audit reports of Chinese companies listed in New York. This could end a dispute between the two countries that threatened more than 200 Chinese companies with possible expulsion from the New York Stock Exchange or the Nasdaq.

In the new draft rule released on Saturday, the regulator removed a requirement that the review of financial documents of overseas-listed Chinese companies be “primarily carried out by Chinese regulatory agencies.”

Instead, it says inspections are to be “conducted through cross-border regulatory cooperation” and that the CSRC will provide assistance during the process.

The CSRC also said that all overseas listed companies will be responsible for the proper management of confidential and sensitive information and the protection of national security.

The draft rule was put out for public consultation until April 17.

“The review could potentially offer a long-term solution to disputes over the audit requirement between China and the United States, reducing the risk of Chinese companies being delisted from U.S. exchanges,” wrote strategist Ken Cheung Kin Tai. chief of Asian currencies at Mizuho Bank, in a note on Monday.

US regulators have long complained about the lack of access to Chinese companies’ books. But Beijing, citing national security concerns, has resisted such scrutiny. It requires companies that are listed overseas to conduct their audits in mainland China, where they cannot be scrutinized by foreign agencies.

In late 2020, the Holding Foreign Companies Accountable Act was signed into law, giving the Securities and Exchange Commission power to kick foreign firms off Wall Street if they don’t allow US regulators to review their audits for three consecutive years.

Chinese tech stocks rebound

Last month, the Securities and Exchange Commission named a few Chinese companies that could be delisted from the United States for failing to meet these requirements, including Baidu (BIDU) and yum china (YUMC). The move sparked a strong sell-off in Chinese stocks as investors feared more companies would be listed.

The Nasdaq Golden Dragon China Index, a popular index that tracks more than 90 Chinese companies listed in the United States, lost a quarter of its value in four trading sessions last month.

China could backtrack to prevent its companies from being kicked off Wall Street

Markets hosted the CSRC amendment, with Chinese tech stocks rallying in Hong Kong.

Tech giant Baidu (BIDU) jumped 7.8%. Its U.S.-traded shares ended Friday up more than 6% on rumors that China was weighing giving U.S. officials better access to Chinese audits.
video sharing site bilibili (BILI) increased by 13%, while Ali Baba (BABA) and (J.D.) jumped 3.7% and 7.7% respectively.

“The excess on Chinese companies listed in the US has been partially removed,” said Mike Shiao, chief investment officer for Asia (excluding Japan) at Invesco.

Chinese authorities have tried to soothe investors’ nerves after the recent market rout. Last week, the CSRC said its chairman, Yi Huiman, and SEC chairman Gary Gensler had held several meetings to discuss audit issues and that there had been “good progress.” Earlier last month, Chinese Vice Premier Liu He, one of President Xi Jinping’s top economic advisers, told a key government meeting that Beijing would continue to support Chinese companies that want to register for the stranger.
However, Gensler told Bloomberg last week that only full compliance with US audit inspections would allow Chinese companies to continue trading in New York markets.

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