Tag Archives: New York Stock Exchange

China-US Audit Deal Has Room For Many A Slip

BEIJING AND WASHINGTON have reached a preliminary deal to allow US inspectors to review audit documents of Chinese businesses that trade on US exchanges, a first step toward avoiding the delisting of about 200 Chinese firms from New York exchanges.

This is the latest attempt to resolve a more-than-a-decade-long standoff over mutually incompatible auditing regulations. As the two headlines from the official announcements (above) indicate, it is progress towards a resolution, not the resolution itself.

So that regulators can ‘audit the auditors’ of companies listed on US exchanges, US securities rules require Chinese firms listed in the United States to allow access to documents that Chinese restrictions prevent them from disclosing.

China and Hong Kong are the sole foreign jurisdictions that have not allowed inspections by the Public Company Accounting Oversight Board (PCAOB), the US agency that audits the auditors. All companies listed in the United States must submit to PCAOB inspections under the Sarbanes-Oxley Act of 2002. Beijing cited national security and confidentiality concerns as its grounds for refusing.

Since the US Congress passed the Holding Foreign Companies Accountable (HFCA) Act in 2020, putting a three-year time limit on uncompliant companies coming into compliance, some 200 Chinese firms with a market value of more than USD1tn have been potentially at risk of mandatory delisting if they do not do so.

Under the new agreement, the PCAOB will start inspections in Hong Kong in mid-September. Its inspectors are not travelling to the mainland for health safety reasons, but the agreement stipulates that all the documents they request will be made available to them in Hong Kong.

Towards the end of the year, the PCAOB will determine if they have had the access they require to affirm whether Chinese firms listed in the United States are in compliance with US rules. If not, the US Securities and Exchange Commission (SEC) will determine if the delistings process will go ahead under the HFCA.

The deadline is tight. PCAOB inspections can take months, and the agency will need an army of inspectors to conduct a sufficient sample of audits in parallel.

This is the most detailed and prescriptive agreement on this issue that the two sides have reached, but it is not the first. China’s record of making commitments in principle but then stalling on honouring them in practice advises caution. The success of this deal will be determined by its implementation. There is many a slip between cup and lip, as the old saw has it.

The public announcements of the agreement on both sides underscore the need for caution, with the China Securities Regulatory Commission calling it a ‘cooperation framework’ and the PCAOB, ‘a first step’.

The recently announced intent of several prominent Chinese firms to delist voluntarily from the New York exchanges also suggests that Beijing may be comfortable with a managed withdrawal from US capital markets in favour of primary listings in Hong Kong.

Leave a comment

Filed under China-U.S., Markets

NYSE Delistings Will Nudge Forward China-US Decoupling

DID THEY JUMP, or were they pushed? Whichever, the coordinated announcements by five large Chinese state-owned companies that they are to delist voluntarily from the New York Stock Exchange pre-empt US authorities doing it mandatorily.

The five companies are the oil giants PetroChina and China Petroleum and Chemical (Sinopec), Sinopec’s refining subsidiary, Sinopec Shanghai Petrochemical, Aluminum Corp. of China (Chalco) and China Life Insurance, one of the largest state-owned insurers. All have primary listings in Hong Kong. 

All are also in sectors that Beijing would consider strategic and thus is sensitive to information about them being made available to foreign regulators.

The US Securities and Exchange Commission (SEC) and the China Securities Regulatory Commission have been battling for two decades over incompatible auditing regulations. 

The SEC wants US-listed Chinese mainland-based companies to provide the top US audit watchdog, the Public Company Accounting Oversight Board, with the same access to their financial records that is required of all companies to protect investors from accounting frauds and other financial wrongdoing. 

China refuses to let its companies open their books to foreign regulators for national security reasons.

Last year, there were indications of a compromise being struck, but discussions seemingly have stalled. However, it is possible that voluntary delistings that take the most sensitive Chinese companies out of the equation could be paving the way for an agreement. 

The fundamental problem remains that US rules require listed firms to allow access to information that China bars them from disclosing. 

Under the Holding Foreign Companies Accountable Act passed in 2020, the US Congress has imposed a deadline of 2024 for the NYSE to expel companies that do not comply with US audit requirements. 

Upwards of 200 Chinese firms, Alibaba among them, with an aggregate market capitalisation of more than $1 trillion, are potentially at risk of delisting. The departure of each one would mark another step in the slow walk of economic decoupling between the two countries.

1 Comment

Filed under China-U.S., Markets

China-US Decoupling Changes Its Terms Of Engagement

KEEP, CHINA’S MOST popular fitness app, and medical data group LinkDoc Technology pulled plans for initial public offerings (IPO) on the New York Stock Exchange in advance of last weekend’s crackdown on four other sector-leading app platforms, it has now emerged.

Didi Chuxing (ride-hailing), Huochebang and Yunmanman (commercial vehicles), and Zhipin (recruitment) were all put under investigation by the Cyberspace Administration of China, shortly after launching IPOs in New York, for failing to protect the data privacy of Chinese citizens, as foreign investors would have access to it through their share ownership, thus creating a national security risk.

Didi Chuxing reportedly ignored a warning from authorities to ‘delay’ its $4.4 billion IPO. As Jack Ma’s Ant Group can attest, there are some tigers it is rarely wise to poke in the eye.

In the meantime, authorities are preparing to end the governance structure that allows them to do so, variable interest entities (VIEs). VIEs were created to get around the restriction on foreign ownership of Chinese tech companies that hamper Chinese companies from raising foreign capital but exist in that peculiarly Chinese governance grey area between allowed and forbidden.

The China Securities Regulatory Commission’s (CSRC) is setting up a team that will review any proposed overseas IPO, which will now also require the approval of the relevant ministry. It will be paying particular attention to any Chinese company using a VIE structure.

This will lead to fewer and probably no listings of Chinese companies in New York and more in Hong Kong, where Beijing’s view of sovereignty-based digital governance is more easily enforced.

It appears we have reached a point of asymmetric decoupling of equity markets. In the United States, the Trump administration launched a policy of denying Chinese firms access to US stock exchanges to prevent Chinese access to US technology and capital, leading to the unedifying flip-flop by the New York Stock Exchange over delisting the three leading Chinese telcos. China is now responding by denying US investors access to Chinese data and forcing US capital that wants to invest in Chinese companies to move offshore to Hong Kong.

This would provide the decoupling the previous US administration wanted, and which the current one has shown no signs of reversing, but on China’s terms, which would not have been the original intention.


Filed under China-U.S., Markets, Technology

Silence Speaks Loudly On Biden’s China Policy

ONE THING STANDS out to this Bystander about the flurry of executive orders issued by the new US president Joe Biden to undo those of his predecessor, Donald Trump: none of them relate to China.

The one possible China-related action is a reported extension to May 27 of a deadline in Trump’s executive order that orders US institutional and retail investors to wind down their trading of the securities of 44 Chinese firms on a US Department of Defense blacklist. However, Trump’s deadline for full divestment remains unchanged, November 11.

That is in line with Biden’s clear intention not to pull back from Trump’s China policy any time soon, or at least not to declare his hand prematurely.

Meanwhile, three of China’s biggest telcos, China Mobile, China Telecom and China Unicom HK, all on the US defence department’s blacklist, are in limbo as they appeal the New York Stock Exchange’s delisting of their shares. The Biden administration has been silent on that matter, too.

It has also been quiet on the other US blacklists, the Entity List, maintained by the Bureau of Industry and Security (BIS) within the US Department of Commerce and the Commerce department’s military end-user list. Trump added many Chinese companies, most notably Huawei, to the former to cut the supply chains of Chinese technology companies through export controls, and to the latter to prevent dual-use US technology reaching the People’s Liberation Army.

In her confirmation hearings, Biden’s Treasury Secretary, Janet Yellen, indicated a continuation of a tough stance towards Beijing and wishing to bring its allies alongside it in common cause.

That already exists with regard to the presence of Chinese-made kit in 5G networks, but other trade issues of concern that Yellen highlighted, and where there could be international cooperation, include dumping, trade barriers and illegal subsidies to (state-owned) corporations.

Those should all be part of the Phase Two negotiations between Washington and Beijing of Trump’s US-China trade deal, should the Biden administration so choose to pick up the talks. Though they were meant to start immediately on the signing of Phase One of the deal a year ago, they have not stalled as a result of the combination of the disruption caused by the Covid-19 pandemic and the general deterioration of bilateral relations in the final year of the Trump presidency.

February 14 marks the first anniversary of Phase One of the deal, That date could provide the opportunity for the new administration to lay out its stance on China. Still, this Bystander expects it will prefer to continue to hold its cards close to its chest, not least until it has reviewed all its trade relationships in the Indo-Pacific and come up with a cohesive strategic strategy for the region.

Leave a comment

Filed under China-U.S., Trade

Request To Reverse Telco’s NYSE Delisting Proffers Early Olive Branch

THE BACK AND forth over the New York listing of the shares of China Mobile, China Telecom and China Unicom HK takes another turn with the three state-backed telecommunications companies asking the New York Stock Exchange (NYSE) to review its twice reversed decision to delist them.

The NYSE took the action in response to the then US administration’s banning of investment by US citizens in companies deemed to have connections to the People’s Liberation Army.

In a filing to the Hong Kong Stock Exchange, where all three have their primary listing, the companies said that they had asked the NYSE to lift the suspension of trading in their shares pending the reviews.

The requests came as Joe Biden was sworn in as US president in succession to Donald Trump and China’s foreign ministry spokesperson made a call for a reset of US-China relations if not exactly a return to the pre-Trump era status quo.

In the past few years, the Trump administration, especially [ex-US Secretary of State Mike] Pompeo, has laid too many mines, burned too many bridges and destroyed too many roads in China-US relations, which are waiting to be cleared, rebuilt and repaired. I think both China and the United States need to show courage and wisdom, truly hear, see and show respect to one another. This is what we should do as two major powers.

As the Trump administration left office, Beijing imposed sanctions on several of its officials, including Pompeo, accusing them of having ‘seriously violated’ China’s sovereignty. This followed Pompeo’s designation of China’s actions against Muslim Uighurs in Xinjiang amounted to crimes against humanity and genocide and a host of other actions taken in its final weeks of office.

However, the Biden administration will be in no hurry to pick up any olive branches being extended in its direction. The new president did not include any China-related executive orders by Trump in the slew he overturned on his first day. Nor has the invitation to Taiwan’s representative in the United States to attend his inauguration ceremony gone unnoticed in Beijing.


Filed under China-U.S., Markets

NYSE Said Considering Reversing Its Reversal On Chinese Telcos Delisting

This is spinninng faster than a revolving door, and with about as much control.

The New York Stock exchange is reported to be reconsidering (Update: has U-turned on) its decision not to proceed with the delisting of three state-owned telcos, China Mobile, China Telecom and China Unicom HK that it announced last Thursday.

This follows a rebuking telephone call from US Treasury Secretary Steven Mnuchin to NYSE president, Stacey Cunningham. The White House, apparently, was as caught unawares by the exchange’s sudden reversal as everyone else.

The NYSE is now reportedly awaiting clarification from the US government about who and what exactly was banned by US President Donald Trump’s executive order in November that stops US investors holding stakes in companies with alleged ties to the Chinese military. The order is due to come into effect on January 11, nine days before he leaves office.

The whole back-and-forth seems to encapsulate the chaos over the United States’ China policy in the final days of the Trump administration.


Filed under China-U.S., Financial Services

NYSE Delisting Reversal May Reflect Hard Reality

THIS BYSTANDER IS as taken aback as anyone by the New York Stock Exchange’s abrupt and unexpected volte-face over delisting three Chinese telcos.

The only explanation the exchange has given for reversing its December 31 announcement that it was initiating the delisting of China Mobile, China Telecom and China Unicom HK to comply with a November executive order issued by US President Donald Trump, is that it no longer intends to move forward ‘in light of further consultation with relevant regulatory authorities’.

There is clearly more backstory to come out, including whose ‘relevant regulatory authorities’ were consulted.

The optimistic interpretation is that the about-turn reflects expectations of a less combative approach towards China once US President-elect Joe Biden takes office on January 20. Yet if that was the case, the NYSE could have slow-walked making its initial decision until after then.

To this Bystander. a more realistic explanation is that the NYSE has been given cause for concern that the trickle of listings moving from New York to Hong Kong will turn into a torrent and that Wall Street firms’ much-expanded access to China’s financial markets achieved over the past year — the real win of Trump’s Phase One US-China trade deal signed a year ago — is at serious risk of being cut back by retaliatory moves from Beijing.

At Tuesday’s foreign ministry’s daily press conference, spokeswoman Hua Chunying took the high ground, saying:

The role of the US as the global financial centre is dependent on the trust by global companies and investors in the inclusiveness and credibility of its rules. [Delisting} seriously breached the much-touted principles of market economy and fair competition, as well as international economic and trade rules.

Leaving plenty of room for low cunning.

1 Comment

Filed under China-U.S., Financial Services

NYSE Delisting Move Reflects Hardening US Line Against China

THE NEW YORK STOCK EXCHANGE’S decision to suspend trading in the shares of China Mobile, China Telecom and China Unicom HK in preparation for delisting is mostly a symbolic move. The three state-owned companies’ businesses are domestic, and their shares are little traded in New York. Their primary stock exchange listing is in Hong Kong.

However, it is also symbolic of how the hardening of opinion against China in the United States is more widespread than just China hawks in the Trump administration.

All three telcos stand accused of having links with the People’s Liberation Army. Since November, US investors have been banned by US presidential executive order from buying and selling shares in Chinese companies designated by the US Department of Defence as being ‘Communist Chinese military company’. Both China Mobile and China Telecom were on such a list that the Pentagon published in June. China Unicom was added in an update published in October.

The NYSE says its move to delist the three telecoms companies is to be compliant with the executive order.

The list and executive order are part of the Trump administration’s attempts to slow both the PLA’s modernisation and the drive to develop indigenous technologies by denying Chinese firms access to US capital. Three of the world’s leading index providers, MSCI, FTSE Russell and S&P Dow Jones, have also dropped the proscribed Chinese companies from their indexes, depressing their stocks’ attractiveness to global investors.

More than 200 Chinese companies are listed on US stock markets with a total market capitalisation of $2.2 trillion. Prominent names like Alibaba and JD.com have pre-emptively taken secondary listings in Hong Kong.

The US House of Representatives has recently followed the US Senate in passing a bill requiring non-US listed companies (for which read Chinese firms) to comply with US stock exchanges’ auditing rules and disclose whether they are owned or controlled by a foreign government. Firms have three years to comply or face delisting.

The Trump administration has been ramping up its actions against China in its final weeks, intending to lock-in as much of its China policy as it can before it leaves office on January 20.

On December 18, it the Bureau of Industry and Security (BIS) in the U.S. Department of Commerce added more than 70 entities, including the high-profile chipmaker Semiconductor Manufacturing International Corp. (SMIC) of China, to the Entity List.

Listing effectively prevents a company doing business with any US firm as it requires the granting of a special export licence under the Export Administration Regulations (EAR) for any export, reexport or transfer to them of goods, software or technology. That licence is presumed to be denied for firms on the Entity List.

BIS followed that by announcing on December 21 that it was adding a new category, Military End User, to the EAR. Of the initial 103 entities so designated, 58 are Chinese.


Filed under China-U.S., Markets