US bill demands access to Chinese firms’ audit data

Reuters, WASHINGTON and HONG KONG

Fri, Jun 07, 2019 - Page 1

A bipartisan group of US lawmakers on Wednesday introduced a bill to force Chinese companies listed on US stock exchanges to submit to regulatory oversight, including providing access to audits, or face delisting.

Chinese authorities have long been reluctant to allow overseas regulators to inspect local accounting firms — including member firms of the Big Four international accounting networks — citing national security concerns.

In spite of a 2013 agreement that ended a stalemate over the issue and allowed US regulators to request audit working papers in China, there have been difficulties in actually gaining access.

At least two Hong Kong-based audit firms have been barred from auditing US-listed companies, because they could not produce the papers US regulators asked for.

“Beijing should no longer be allowed to shield US-listed Chinese companies from complying with American laws and regulations for financial transparency and accountability,” Republican US Senator Marco Rubio said in a statement.

Last year, the US Securities and Exchange Commission and the Public Company Accounting Oversight Board issued a warning to investors about the difficulties US regulators faced in inspecting the audit work and practices of auditing firms in China that examine US-listed Chinese companies.

There are 156 US-listed Chinese companies with a combined market capitalization of US$1.2 trillion, including oil and gas giant China Petroleum & Chemical Corp (中國石油化工) and Alibaba Group Holding (阿里巴巴).

“It’s time for China’s government to play by the same rules as American companies in our financial markets,” Senator Bob Menendez, a Democrat who cosponsored the bill, said on Tuesday.

Many US-listed Chinese firms have complex governance structures, such as weighted voting rights, which are not allowed for firms listed on Chinese exchanges.

Hong Kong Exchanges and Clearing last year changed its rules to allow listings by companies with weighted voting rights, although its rules differ markedly from those in the US.

Alibaba is considering a second listing in Hong Kong, which could raise as much as US$20 billion, Reuters reported last week.

Advisers and others close to the potential Alibaba deal downplayed any US-China trade dispute reasoning for the move, but analysts at the time said that the context and geography could not be ignored.

Eight Chinese companies have listed in the US this year, raising US$1.2 billion, Dealogic data showed.