Chinese US listings: cease and delist

Pushing for improved accounting standards at overseas listed Chinese companies makes sense. Ejecting them from US exchanges for not meeting exact US standards does not.

First, this is not a corporate matter. The China Securities Regulatory Commission has long limited access to America’s accounting oversight body. Affected companies caveat financial reports by acknowledging the US Public Company Accounting Oversight Board’s “inability to inspect audit work and practices of accounting firms in China”.

Delisting them all is impractical. There are 230 Chinese companies worth about $1.8tn listed in the US, reckons the Peterson Institute for International Economics. More are in the pipeline. That includes a $2bn offering from KE, a realty company backed by Chinese tech giant Tencent. Many of are so big they feature in indices tracked by fund managers. Alibaba, which dominates China’s tech sphere alongside Tencent, boasts a 0.9 per cent weighting in the widely followed MSCI all country world index.

Hearing the drumbeat, many of these companies have already sought secondary listings in Hong Kong or mainland China. Presumably enabling US investors to switch their holdings for Hong Kong listed paper would defeat the purpose of delistings. Equally, disposing of shares would mean selling into a complete freefall. If so, Chinese companies and American investors would suffer.

Given the political climate, the CSRC is unlikely to be minded to roll over; but some kind of face-saving compromise would help. Co-auditing by a similarly-resourced audit firm that could be inspected by the PCAOB, suggested in the US president’s working group paper, is one option. The watchdog might also consider a more equitable spread of auditors: PwC Zhong Tian, for example, audits the books of a large slice of China’s techsphere.

Those bent on mirror standards should also recall that PCAOB oversight is not everything. Both the US and Europe have proved perfectly capable of spawning corporate accounting scams, with or without oversight.

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