A Chinese national flag flutters in front of the China Securities Regulatory Commission (CSRC) building on Financial Street in Beijing, China July 9, 2021. REUTERS/Tingshu Wang
SHANGHAI/BEJING, April 2 – China on Saturday proposed revising confidentiality rules regarding offshore listings, removing a legal hurdle for Sino-US cooperation on audit oversight while handing responsibility to Chinese companies to protect state secrets.
The draft rule announced by China’s securities regulator marks Beijing’s latest attempt to settle a long-standing audit dispute with Washington that could result in some 270 Chinese companies being forced to delist from US stock exchanges in 2024.
Saturday’s proposal scraps requirements for on-site inspections of overseas-listed Chinese companies to be conducted primarily by Chinese regulators.
This could open the floodgates to inspections by US regulators demanding full access to such companies’ audit working papers stored in China.
The changes will “facilitate cross-border regulatory cooperation, including joint inspections, which will help safeguard the interests of global investors,” the China Securities Regulatory Commission (CSRC) said in a statement on its website.
China is stepping up efforts to ensure Chinese companies stay listed in New York.
The commission said Thursday that Chinese and U.S. regulators held multiple rounds of meetings and both sides are ready to settle their audit dispute. Continue reading
But U.S. securities and auditing regulators have quashed speculation about an imminent auditing deal with China. In March, the US Securities and Exchange Commission (SEC) identified 11 US-traded Chinese companies, including Baidu Inc and Yum China (YUM.N), as facing risk of delisting. Continue reading
STATE SECRETS
The draft rule makes it clear that Chinese companies are responsible for information security in foreign listings, reducing the likelihood of confidential information unnecessarily leaking into auditors’ working papers, CSRC said.
“Procedural requirements” will be added to the rules, which require Chinese companies to provide written statements when providing “sensitive information” to intermediaries such as insurers and auditors, although experience has shown that such situations should be “very rare”, according to the regulator.
CSRC said the rules would provide clear guidance on protecting state secrets and lead to “orderly” securities issuance and listings by Chinese companies.
The current confidentiality rules, published in 2009 by the CSRC, the State Secrets Bureau and the Archives Bureau, are outdated, CSRC added.
Sources told Reuters last month that Chinese regulators have asked some of the country’s US-listed companies, including Alibaba, Baidu and JD.com, to prepare for more audit disclosures. Continue reading
In mid-March, Vice Premier Liu He said talks between Chinese and US regulators on offshore listing issues had made progress and the two sides were working on concrete cooperation plans.
Reporting from Reuters Shanghai and Beijing newsrooms; Adaptation by William Mallard