The SEC declined to comment on the rulemaking plan.
Fang Xinghai,the vice chairman of the China Securities Regulatory Commission,sounded a positive note on resolving the issue at a panel discussion earlier this week,saying it's important to ensure that Chinese companies have access to international capital markets.
"I think during the Biden administration we should be able to resolve that problem because it's not an intractable problem,"Fang said at the New Economy Forum."All it takes is good will on both sides and a willingness on both sides."
At a briefing on Wednesday in Beijing,Foreign Ministry spokesman Zhao Lijian said China believes that it's"important to improve"the qualities of the securities market and regulators and that cross-border regulatory mechanisms are"essential."
He added that China has in the past reached out to the SEC and other authorities and has never prevented any auditing because it's committed to building a sound environment.
Chinese stock listings have attracted Trump's attention,as he ratchets up his attacks on China over the coronavirus pandemic and other grievances. Last week,he signed an order barring American investments in Chinese firms owned or controlled by the military. The SEC's work on a proposal was reported earlier by theWall Street Journal.
In happier days:Billionaire Jack Ma,chairman of Alibaba Group,on the floor of the New York Stock Exchange at the Chinese company's listing in 2014.Credit:Bloomberg
The fight over audit inspections dates back to the 2002 Sarbanes-Oxley Act,which overhauled regulation of public company audits after the collapses of Enron and WorldCom. The law set up the PCAOB and required it to conduct regular inspections of the firms that review companies'books. Though it applies to businesses across the world if they tap the US markets -- and more than 50 foreign jurisdictions permit the reviews -- China has refused to comply,citing strict confidentiality rules.
US and Chinese officials have repeatedly failed to come up with a compromise. In the meantime,Chinese companies have continued to go public via US stock exchanges even though American law is being ignored. They've raised about $US12 billion ($16.4 billion) in IPOs this year,the highest since 2014 when Alibaba debuted.
The President's Working Group report that's driving SEC action recommended that exchanges such as the New York Stock Exchange and Nasdaq establish enhanced standards to prevent the listing of companies that don't adhere to US rules. The report called on the SEC to pass new rules,but said they shouldn't take effect until January 2022 to prevent market disruptions.
US investors'exposure to Chinese stocks is growing,according to the SEC. More than 150 of the country's companies,with a combined value of $US1.2 trillion,traded on American exchanges as of 2019.
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A further clampdown by the US could provide a boost to China's stock exchanges and the one in Hong Kong. The financial hub has already seen a spate of homecomings from Chinese juggernauts such as NetEase and JD.com.,which have sought secondary listings in the city amid increased tension.
Companies looking to tap the US for customers or added visibility are likely to want to comply,but those who don't consider America to be a target market could move listings to places like Hong Kong,said Benjamin Quinlan,chief executive officer of Quinlan&Associates,a strategy consultant in Hong Kong.
"I do think Hong Kong exchange in particular as well as some of the local and domestic exchanges in China will be key beneficiaries,"said Quinlan.
Analysts also say there's plenty of cash in Asia to back listings,both in the region and from abroad.
"Some of these Chinese companies are highly competitive,have been growing strongly and leveraged to some very exciting themes of the future,"said Chetan Seth,Asia-Pacific equity strategist at Nomura Holdings."I expect that there will always be interest from global investors in some of these names. Potential delistings from US exchanges shouldn't materially impact the fundamentals of the companies."
Bloomberg
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