Delisting Risk for U.S.-Listed Chinese Stocks Drops Sharply After Regulatory Agreement

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According to Goldman Sachs researchers, their model “suggests that the market may be pricing in approximately 50% probability” that Chinese companies will be delisted from the US stock exchange.

This is down from 95% in mid-March, when it was the highest since January 2020.

The China Securities Regulatory Commission and the United States Public Company Accounting Oversight Board said Friday that they had inked an agreement to collaborate on scrutinising audit work documents of Chinese businesses listed in the United States.

BEIJING (Xinhua) — According to Goldman Sachs analysts, the chance of Chinese companies being delisted from US exchanges has practically been cut in half after authorities struck an audit agreement.

The China Securities Regulatory Commission and the United States Public Company Accounting Oversight Board said Friday that they had inked an agreement to collaborate on scrutinising audit work documents of Chinese businesses listed in the United States. The agreement was also signed by China’s Ministry of Finance.

This is without a doubt a regulatory breakthrough Goldman Sachs’ Kinger Lau and colleagues stated, while cautioning that there is still substantial uncertainty.

They noted that the PCAOB stated that the agreement was simply a first step, whereas the Chinese side stated that they would provide help in the inspections.

The PCAOB stated that it hoped to deploy inspectors on the ground in China by mid-September and reach a decision on whether China was still restricting access to audit information in December.

According to Goldman Sachs researchers, their model “suggests that the market may be pricing in approximately 50% probability” that Chinese companies will be delisted from the US stock exchange.

This is down from 95% in mid-March, when it was the highest since January 2020.

The Holding Foreign Companies Accountable Act entered law in late 2020. It empowers the US Securities and Exchange Commission to delist Chinese businesses from US markets if American authorities are unable to review corporate audits for three years in a row.

Since March, the SEC has begun to issue warnings to Alibaba and other specific U.S.-listed Chinese stocks for failing to comply with the new law.

Recent CSRC developments
However, China’s securities regulator told CNBC in January that it hoped that offshore listings would restart after new guidelines were implemented.

Separate draught rules were produced by the CSRC in April, which removed a language that would have barred extensive audits by foreign entities.

Earlier that month, the agency announced that it had met with many accounting firms and advised them to consider preparing for joint inspections.

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