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China working on a solution to divide US-listed companies into 3 categories to stop delisting

Written by Cláudio Afonso | | LinkedIn | Twitter

China is currently working on a plan in order to stop the delisting fear of around 260 of US-listed Companies lived since the law approved in 2020, FT reported on Sunday. The country is working on a solution that divides US-listed Chinese companies in three different groups considering the sensitivity of the data they hold.

The groups consist in firms “with non-sensitive data; with sensitive data and with “secretive” data which would have to delist with the low risk category probably including retailers and restaurant chains”, the report says.

One of the people related with the matter told FT that “Beijing had discussed whether companies in the “sensitive data” category could restructure their operations to become compliant, including by outsourcing the information to a third party”.

In 2020, Congress said that “it’s time for audit firms in all jurisdictions around the world to comply fully with Sarbanes-Oxley” approving a new rule to delist firms from the U.S. Stock Market if these don’t open their work papers to PCAOB inspection for three consecutive years.

The approved says, if governmental authorities don’t allow the auditors of foreign companies “to open their work papers to PCAOB inspection for three consecutive years”, the securities of companies audited by those firms could be “prohibited from trading in the U.S.”.

With the new rules, investors will be able to easily identify registrants whose auditing firms are located in a foreign jurisdiction that the PCAOB cannot completely inspect, U.S. SEC Chair Gary Gensler said in December 2021.


“The Commission and the PCAOB will continue to work together to ensure that the auditors of foreign companies accessing U.S. capital markets play by our rules. We hope foreign governments will, working with the PCAOB, take action to make that possible,” he added.

Last May, YJ Fischer, the SEC office of international affairs director said, “Though there have been ongoing and productive discussions between US and Chinese authorities . . . significant issues remain and time is quickly running out

Earlier this month, Bloomber reported U.S. Public Company Accounting Oversight Board (PCAOB) and the China Securities Regulatory Commission and the Ministry of Finance held calls with the negotiations “reaching a critical point”. Bloomberg added that the “redactions in auditors’ documents are a key barrier” to reaching a deal.

In early May, US SEC updated the Holding Foreign Companies Accountable Act (HFCAA) list adding NIO, XPeng while the PHEV maker LI Auto was added in late April. When both EV makers were added to the list, NIO answered saying it will “continue to comply with applicable laws and regulations in both China and the United States” and also “strive to maintain its listing status on both the NYSE and the HKEX in compliance with applicable listing rules”.

Written by Cláudio Afonso | | LinkedIn | Twitter