China is setting up a system to screen Chinese companies listed in the United States into groups based on the sensitivity of the data they hold, in a possible bid by Beijing to try to prevent U.S. regulators from targeting and delisting hundreds of groups.
The system is designed to force some Chinese companies to comply with U.S. rules that require public company regulators to audit their audit files, according to four people familiar with the situation.
Chinese companies listed in the U.S. fall into three broad categories, the two said. The groups are those with non-sensitive data, those with sensitive data, and others with “confidential” data to pass through.
One person said Beijing was discussing whether companies in the “sensitive data” category could make their operations compliant, including outsourcing information to third parties.
This type of system is the second major offer by Beijing to remove barriers that would allow the United States to have full access to audits. It was in April Changing the ten-year rule It regulated the data sharing practices of third party companies.
The schedule is subject to debate and change after months of stalled talks between Beijing and Washington over a US requirement that Chinese companies and their accountants make available or write detailed audit documents by 2024.
A joint waiver could be an important step toward an economic disconnect between the U.S. and China and threaten $1.3 trillion in shareholder value. About 260 of China’s biggest companies, including tech group Alibaba, fast-food giant 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 biggest securities watchdog in Beijing, did not comment.
Beijing has traditionally opposed allowing Chinese companies to provide data to foreign regulators on national security grounds.
But under the staged arrangement, “low-risk” data companies would be able to access their audit data to the Public Enterprise Accounting and Oversight Board, two of the people said. The low-risk category includes retailers and restaurant chains.
The head of a major investment firm based in Hong Kong, referring to the taxi group: He was fined more than a billion dollars Beijing last week for cyber security breaches.
US officials are skeptical that Chinese companies will meet the full transparency standards required under the Foreign Enterprise Accountability Act, a 2020 law that forced Chinese and Hong Kong companies to open their audit files.
Despite ongoing and fruitful discussions between US and Chinese officials. . . “There are still significant issues and time is running out,” YJ Fischer, director of the SEC’s Office of International Affairs, said in a speech in May.
Fisher said an agreement to provide access to audit files “will be preliminary.” PCAOB officials must visit China and audit any Chinese issuer listed in the United States.
“I don’t know how we’re going to fix this,” the head of an investment firm said, adding that Beijing and Washington were using the dispute over control for “political gain” and that relations were at their worst in 40 years.
“As an investor, I believe both sides will be sufficiently pragmatic.”
The PCAOB said in a statement that it “chooses to examine or investigate any entity’s audit records — no loopholes, no exceptions.”
“Introvert. Communicator. Tv fanatic. Typical coffee advocate. Proud music maven. Infuriatingly humble student.”