Beijing and Washington have reached a preliminary agreement to allow American officials to review audit documents of Chinese businesses that trade in the U.S., a first step toward avoiding the delisting of about 200 firms from New York.
As part of the deal, China will allow Public Company Accounting Oversight Board inspectors to access audit work papers and personnel, according to statements by U.S. and Chinese regulators on Friday. They added that American inspectors plan to be on the ground by mid-September.
The agreement marks a breakthrough in resolving a decades-long standoff between the two superpowers over access to audit documents. The long-simmering dispute over accounting has become a major sticking point since a U.S. law passed in 2020 said firms whose work papers can’t be inspected face being kicked off American stock exchanges.
China and Hong Kong are the lone two jurisdictions worldwide that haven’t allowed the PCAOB inspections, with officials there claiming national security and confidentiality concerns. The agreement announced on Friday represents a rare compromise from Beijing, which has repeatedly vowed to bolster market confidence while balancing national security concerns with the needs of businesses.
“This agreement marks the first time we have received such detailed and specific commitments from China that they would allow PCAOB inspections and investigations meeting US standards,” Securities and Exchange Commission Chair Gary Gensler said in a statement.
The China Securities Regulatory Commission said that delistings can be avoided if follow-up cooperation can meet demands of both sides.
The agreement is just the first step. The PCAOB will need to get a large number of its inspectors on the ground, and audit checks on selected firms could take months before a determination on compliance is made.
Shares of large-cap Chinese technology giants surged in premarket trading Friday, their second straight day of outsized gains. Alibaba Group Holding Ltd. rose as much as 4.6%, while JD.com Inc. added 4.8% and Pinduoduo Inc. jumped nearly 9%. The moves put the Nasdaq Golden Dragon China Index, which saw its biggest one-day pop since June on Thursday, on track for a fifth straight session of gains.
Talks between Beijing and Washington gathered pace after state-owned companies including China Life Insurance Co., PetroChina Co. and China Petroleum & Chemical Corp. said on Aug. 12 that they planned to delist from US exchanges. Meanwhile, firms such as Alibaba are seeking primary listings in Hong Kong.
— With assistance from Divya Balji and Lisa Du