US audit officials have started a fresh round of inspections of New York-listed Chinese companies in recent weeks, according to a Bloomberg report. The development comes to light on the second day of Treasury Secretary Janet L. Yellen’s visit to Beijing to repair the ties.
The Public Company Accounting Oversight Board (PCAOB) – a US audit watchdog led the inspection, part of an agreement signed between Washington and Beijing last year. A team was dispatched to Hong Kong last month to review 2022 audit reports of some high-profile Chinese stocks listed on US stock exchanges, the publication claimed.
Chinese firms such as Tencent Music Entertainment Group, NetEase Inc., Didi Global Inc, among dozen others are next on the list to be inspected.
PCAOB board Chair Erica Williams had hinted about such audits back in May when she said the agency expects fieldwork to continue this year. She added the goal was to review companies that account for 99 per cent of the market value of US-listed firms that are audited by Hong Kong and China firms.
Why the audits?
Last year, after more than a decade of demand by the US regulators to audit papers of US-listed Chinese companies, the two nations arrived at a middle ground and signed the pact. If the deal was not signed, nearly 200 Chinese companies, including tech behemoth Alibaba could have been banned from US exchanges.
Prior to the signing of the pact, Beijing did not allow American authorities to examine the audit books saying they were national secrets and hence cannot be shared with third parties.
In 2020, under former president Donald Trump, the Holding Foreign Companies Accountable Act was passed which forced SEC to take a tougher stance against US-listed Chinese companies. It eventually forced Beijing to concede to the regulators’ demands.
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The timing of the audit, however, is curious. Earlier this week, the chip war between the two countries took a new turn after China imposed export controls on two rare elements, essential for the manufacturing of semiconductors.
Washington returned the favour with news reports claiming that the Biden administration was planning to restrict Chinese access to US cloud-computing services.
The relations are expected to remain frosty despite Yellen’s visit to Beijing and attempt to mend ties. After arriving in the mainland, Yellen criticised the Chinese government’s harsh treatment of companies with foreign ties.
“During meetings with my counterparts, I am communicating the concerns that I’ve heard from the U.S. business community – including China’s use of nonmarket tools like expanded subsidies for its state-owned enterprises and domestic firms, as well as barriers to market access for foreign firms,” said Yellen.
“I’ve been particularly troubled by punitive actions that have been taken against US firms in recent months.” Representatives of Boeing, Bank of America and the agriculture giant Cargill were among those in attendance,” she added.
(With inputs from agencies)
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