Title: US Gains Access to Audits of Chinese Companies, Easing Tensions
The United States has made significant progress in its efforts to gain access to the audits of Chinese companies listed on American exchanges. For over three years, approximately 200 Chinese companies faced the possibility of being delisted if American regulators were unable to review their audit documents. However, a 2022 agreement between Beijing and Washington has paved the way for US inspections of these audits to commence.
To ensure compliance, Congress passed the Holding Foreign Companies Accountable Act (HFCAA) in 2020. This legislation stated that companies would be unable to trade on US exchanges unless American inspectors were granted access to review their audits. In 2022, the Securities and Exchange Commission (SEC) began listing the names of companies that could potentially be delisted from American exchanges, including major players like Alibaba, JD.com, Pinduoduo, and China Petroleum & Chemical. As a testament to their commitment, a law passed at the end of 2022 accelerated the process, shortening the timeframe for delisting noncompliant companies to two years instead of the initial three.
Thankfully, the situation has significantly improved in the last year, marking a positive development in the otherwise frosty relations between the world’s two largest economies. In August 2022, American and Chinese authorities signed an agreement that allowed officials to initiate the review of audit documents for Chinese businesses trading in the US. This move was hailed as a major step forward by both parties. Further progress was made when the Public Company Accounting Oversight Board (PCAOB) released its first audit inspection reports in May, which found that two US Big Four accounting firms, namely KPMG’s China affiliate and PricewaterhouseCoopers’ Hong Kong affiliate, fell short in properly vetting their clients’ accounting or internal controls in seven out of eight cases. Consequently, in June, the PCAOB dispatched a team to Hong Kong to assess the audit reports of prominent Chinese companies listed in the US such as Tencent Music Entertainment, Didi Global, and NetEase.
Critics of the existing system argue that Chinese companies enjoy the benefits of trading on US exchanges while operating in an opaque system and receiving government support. In response to these concerns, the HFCAA also mandates that foreign companies disclose any control exerted by a governmental entity. Additionally, the SEC is demanding greater transparency for investors by requiring more information about the structure and risks associated with shell companies, known as variable interest entities (VIEs), which Chinese companies often employ to list their shares in New York. SEC Chair Gary Gensler emphasized that over 250 companies already trading will face similar requirements.
This development has undoubtedly put pressure on Chinese companies to address concerns about transparency and accountability. While progress has been made, it remains crucial to maintain a balanced perspective on this issue, allowing for different viewpoints to be heard. The ultimate goal is to ensure a fair trading environment that benefits both US investors and Chinese companies. Through continued dialogue and cooperation, the US and China can work together to strengthen trust and foster a healthier global economic ecosystem.
In conclusion, the US has successfully gained access to the audits of Chinese companies listed on American exchanges. The implementation of the HFCAA and subsequent agreements have played a pivotal role in addressing concerns regarding transparency and accountability. By ensuring compliance, promoting transparency, and fostering mutual trust, both countries can work towards a more robust and sustainable economic partnership.
