China is preparing a system to sort Chinese companies listed in the United States into groups based on the sensitivity of the data they hold, in a potential concession from Beijing to try to prevent US regulators from removing hundreds of groups from the list.
The system is designed to bring some Chinese companies into compliance with US rules that require state-owned companies to allow regulators to inspect their audit records, according to four people with knowledge of the situation.
Chinese companies listed in the United States would be divided into three broad categories, two people said. The groups would be companies with non-sensitive data, those with sensitive data and others with “secret” data that should be delisted.
One of the people said Beijing had discussed the possibility of companies in the “sensitive data” category restructuring their operations to comply, including outsourcing the information to a third party.
The category system would be Beijing’s second major concession to remove barriers for the United States to have full access to audits. In April, it changed a decade-old rule that restricted foreign companies’ data-sharing practices.
The plan, which is under discussion and subject to change, follows months of stalled negotiations between Beijing and Washington over the US demand that Chinese companies and their auditors should make detailed audit documents available. or be deregistered in 2024.
A massive delisting would represent a major step toward the economic decoupling of the United States and China and threaten $1.3 billion in shareholder value. About 260 of China’s biggest companies, including technology group Alibaba, fast-food company Yum China and social media site Weibo, could be delisted from New York stock exchanges if they fail to meet the requirements.
The China Securities Regulatory Commission, Beijing’s top securities watchdog, had no comment.
Beijing has generally refused to allow Chinese companies to provide data to foreign regulators on national security grounds.
But under the tiered system, “low-risk” data companies could make their audit records available to the Public Company Accounting and Oversight Board, the US accounting oversight body, two of the people said. The low-risk category would likely include retailers and restaurant chains.
“Anything that falls into the Didi category is clearly prohibited,” said the head of a major Hong Kong-based investment firm, referring to the ride-hailing group that was fined more than ten years. a billion dollars by Beijing last week for cyber. security failures.
U.S. officials are skeptical of Chinese companies’ compliance with the full transparency standards required by the 2020 Foreign Corporate Accountability Act, the 2020 law that required Chinese and Hong Kong companies to open their audit files.
“While there have been ongoing and productive discussions between U.S. and Chinese officials . . . significant issues remain and time is running out quickly,” YJ Fischer, director of the SEC’s office of international affairs, said in a statement. speech delivered in May.
A deal to provide access to audit files would be “just the beginning,” Fischer said. PCAOB officials must also visit China and perform an audit inspection of any Chinese issuer listed in the United States.
“I don’t know how we’re going to settle this,” said the head of the investment company. He added that Beijing and Washington were using the audit line for “political gains” and that the relationship was the worst it had been in 40 years.
“As an investor, I hope both sides will be pragmatic enough.”
The PCAOB said in a statement that it “must have full access to the audit working papers of any company it chooses to inspect or investigate – with no loopholes or exceptions.”