China is preparing a system to sort US-listed Chinese companies into groups based on the sensitivity of the data they hold, in a possible concession by Beijing to try to prevent US regulators from scrapping hundreds of groups.
The system is designed to help some Chinese companies comply with US rules requiring public companies to allow regulators to see their audit files, according to four people with knowledge of the situation.
Chinese companies listed in the US 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 removed from the list.
One of the people said 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.
The category system would be Beijing’s second major concession to remove hurdles that give the US full access to audits. In April, it amended a 10-year rule that curtailed foreign companies’ data-sharing practices.
The schedule, which is under discussion and subject to change, follows months of stalled negotiations between Beijing and Washington over US demands that Chinese companies and their accountants provide detailed audit documents or be delisted by 2024.
A massive delisting would be a major step toward economic decoupling from the US and China and threaten $1.3 trillion in shareholder value. About 260 of China’s largest companies, including tech group Alibaba, fast food company Yum China and social media site Weibo, could be delisted from New York’s stock exchanges if they fail to meet the requirements.
The China Securities Regulatory Commission, the main securities watchdog in Beijing, did not comment.
Beijing has typically opposed allowing Chinese companies to provide data to foreign regulators for national security reasons.
But under the tiered arrangement, “low-risk” data companies could make their auditing data accessible to the Public Company Accounting and Oversight Board, two of the people said. The low-risk category is likely to include retailers and restaurant chains.
“Whatever falls into the Didi category is clearly a no-go,” said the head of a major investment company in Hong Kong, referring to the ride-hailing group that was fined more than $US$ by Beijing last week. 1 billion for cybercrime. security breaches.
US officials are skeptical that Chinese companies will meet full transparency standards required under the Holding Foreign Companies Accountable Act, the 2020 law that forced Chinese and Hong Kong companies to open their audit files.
“Although there have been ongoing and productive discussions between the US and Chinese authorities. . . important issues remain and time is running out,” YJ Fischer, the SEC’s director of international affairs, said in a speech in May.
An agreement to grant access to audit files would be “just the beginning,” Fischer said. PCAOB officials must also travel to China and conduct an audit inspection of any US-listed Chinese issuer.
“I don’t know how we’re ever going to solve this,” said the head of the investment company. He added that Beijing and Washington were using the control room for “political gains” and that relations were the worst they had been in 40 years.
“As an investor, I hope both sides will be pragmatic enough.”
The PCAOB said in a statement it must have “full access to audit working papers from any company it wishes to inspect or investigate — no loopholes and no exceptions.”