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Updates About U.S.-listed Chinese Companies

Time:   04.09.2020
Updates About U.S.-listed Chinese Companies

The U.S. Senate unanimously passed legislation in May 2020 that could prevent some Chinese companies from listing their shares on U.S. exchanges unless they follow standards for U.S. audits and regulations. The U.S. president gave his team two months to release the proposal with recommendations.

On Aug 6th, 2020, Trump administration officials has issued the proposal, and has urged the president to delist Chinese companies that trade on U.S. exchanges and fail to meet U.S. auditing requirements by January 2022. The proposals will force Chinese companies to delist from US stock exchanges unless regulators get access to their audits.

The PCAOB has for years been unable to review audits of China-based companies that are listed on US exchanges. The Chinese government prohibits the US regulator from inspecting auditing firms in the country and bans sharing internal audit documents.

The administration’s recommendations, if implemented via an SEC rulemaking process, would give Chinese companies already listed in the United States until Jan. 1, 2022, to ensure the PCAOB has access to their audit documents.

The Trump administration recommendations envision an alternative to delisting in which the companies could hire a co-auditor outside of China, potentially a US-based entity within the same auditor group, thereby allowing the PCAOB another means to review the audit.

The proposal also recommends enhanced disclosure requirements for China-based companies and funds exposed to China-based groups, requiring more due diligence on the behalf of index providers, and guidance for investment advisers.