Chinese companies have handed U.S. regulators access to audit papers for the first time, easing fears that tech giants like Alibaba and JD.com will be kicked off the country’s stock exchanges.
The move comes after a year of negotiation over how Chinese companies listed in the United States should be regulated. The statement made yesterday by the Public Company Accounting Oversight Board (PCAOB) signals a victory for regulators and a relief for the Chinese firms that faced being delisted.
“For the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them,” PCAOB Chair Erica Williams said in a statement.
U.S.-listed shares traded upwards initially on the news yesterday, but gave up gains and ended the day largely down. Alibaba and JD.com were down between 3-3.5% and Tencent Music was down 3.5%, exceeding the dip of the broader market— the S&P 500 was down 2.5%. The drops were reportedly due to fears raised over what the audits would reveal.
China’s security regulator welcomed the breakthrough, and released a statement saying it was looking forward to working with U.S. officials on the matter. “We have always advocated solving issues of audit supervision on cross-border listings through regulatory cooperation mechanisms,” the China Securities Regulatory Commission wrote in a statement.
Late last year the PCAOB said Chinese authorities were preventing it from conducting complete inspections and investigation in mainland China and Hong Kong. Authorities in China have been reluctant to let overseas regulators inspect account firms, due to national security concerns.