US-listed Chinese firms get a new lease on life—maybe

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Beijing offered a conciliatory overture in a long-running standoff with Washington over audits of U.S.-listed Chinese companies. That is a concrete first step that could prevent the delisting of hundreds of Chinese companies from American exchanges. The ball now heads back to Washington’s court—where its reception remains highly uncertain.

China’s securities regulator proposed revisions to China’s secrecy laws over the weekend that would remove a requirement that audit inspections of overseas-listed Chinese companies be done mainly by Chinese regulators. That has been a key sticking point between China and the U.S. for more than a decade. But the U.S. position has hardened in recent years following a string of high-profile fraud cases involving U.S.-listed Chinese companies like Luckin Coffee, and amid the general deterioration in bilateral relations.

As a result, more than 200 U.S.-listed Chinese companies could soon be booted out of American stock exchanges. The Securities and Exchange Commission has listed more than 10 companies since last month that have declined to let U.S. regulators review their most recent audits, meaning they could be delisted in 2024. Companies flagged include China’s search-engine giant Baidu and the operator of China’s Twitter-like service Weibo.

This latest concession from China paves the way for a potential resolution—at least in theory. Chinese technology stocks jumped in Hong Kong: the Hang Seng Technology Index rose 5.4% Monday.

It’s no great mystery as to why this is happening now following years of intransigence on Beijing’s part. China’s economy is suffering from a pernicious combination of continuing housing market woes, damage to consumption from the country’s worst Covid-19 outbreak since Wuhan, and a sluggish labor market for young people—partly due to the damage from China’s regulatory crackdown last year, which hit overseas listed tech and education firms particularly hard. The delisting risks were also partly to blame for the massive selloff in Chinese stocks last month, which prompted Beijing to signal more supportive policies for the market in recent weeks. Chinese tech stocks have since rebounded strongly.

The question now is whether this olive branch is enough for Washington. The U.S. has been firm in its demand for full access to the audit papers, same as other U.S.-listed companies. China is no longer insisting on leading on-site audit inspections, but much still depends on whether U.S. regulators think they can gain adequate access under the new arrangements.

Another question is which companies would really benefit from the change. Under the draft rules, the burden of protecting state secrets now falls to private companies as well. They have to report to the financial watchdog and other authorities before cooperating with overseas regulators. Given the expansive view of state secrets in China, that may still create tension, especially for companies holding large amounts of potentially sensitive information.

Nonetheless the latest move from Beijing makes a potential deal with the U.S. possible. It’s too soon to know what Washington will decide, but at the very least investors everywhere are likely to welcome any signs of a more accommodative stance, however cautious and preliminary, from Beijing.

This story has been published from a wire agency feed without modifications to the text

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