U.S. delisting risk for Chinese ADR stocks halves after deal

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The China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board announced Friday both sides signed an agreement for cooperation on inspecting the audit work papers of U.S.- listed Chinese companies. Pictured here is the CSRC building in Beijing in 2020.

Emmanuel Wong | Getty Images News | Getty Images

BEIJING — The risk of Chinese stocks delisting from U.S. exchanges has nearly halved after regulators reached an audit agreement, Goldman Sachs analysts said in a report Monday.

The China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board announced Friday that both sides signed an agreement for cooperation on inspecting the audit work papers of U.S.- listed Chinese companies. China’s Ministry of Finance also signed the agreement.

“This is no doubt a regulatory breakthrough,” Goldman Sachs’ Kinger Lau and a team said, while cautioning that much uncertainty remains.

They pointed out the PCAOB said the deal was only a first step, while the Chinese side said they would provide “assistance” in the inspections.

The PCAOB said it planned to have inspectors on the ground in China by mid-September, and make a determination in December on whether China was still obstructing access to audit information.

SEC Chair Gary Gensler breaks down the agreement with China over audit inspections

The Goldman Sachs analysts said Monday their model “suggests that the market may be pricing in around 50% probability” that Chinese companies could be delisted from the U.S.

That’s down from 95% in mid-March — the highest on record going back to January 2020.

In late 2020, the U.S. Holding Foreign Companies Accountable Act became law. It allows the U.S. Securities and Exchange Commission to delist Chinese companies from U.S. exchanges if American regulators cannot review company audits for three consecutive years.

Since March, the SEC has started to call out Alibaba and other specific U.S.-listed Chinese stocks for failing to adhere to the new law.

Outlook for China stocks

Read more about China from CNBC Pro

Few China-based companies have listed in the U.S. following Beijing’s scrutiny of Chinese ride-hailing company Didi’s IPO in late June 2021. Regulators have since tightened restrictions on Chinese companies — especially those with at least 1 million users — wanting to list overseas.

CSRC’s recent moves



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