US-Listed Chinese Shares Surge as Authorities Move to Remove Audit Restrictions; Alibaba Stock Gains 5%

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US-Listed Chinese Shares Surge as Authorities Move to Remove Audit Restrictions; Alibaba Stock Gains 5%
Credit: © Reuters.

Chinese authorities are working to revise confidentiality rules related to offshore listings, marking a significant step forward in resolving disputes in the U.S.-China cooperation on audit oversight.

The proposed revision signals Beijing's latest effort to settle the audit dispute with the U.S. which could result in the delisting of 270 Chinese companies from U.S. stock exchanges in 2024.

As a result, shares of US-listed Chinese companies soared in pre-open Monday. Alibaba (NYSE: BABA ) is up roughly 5%, while Pinduoduo (NASDAQ: PDD ) and JD.com (NASDAQ: JD ) are trading 8.5% and 5.7% higher, respectively.

The new proposal removes requirements that on-site inspection of offshore listings be carried out primarily by Chinese regulators. The move could significantly help in resolving the audit dispute after U.S. regulators demanded complete access to audit working papers of Chinese companies that are listed overseas.

The proposal is expected to support "cross-border regulatory cooperation, including joint inspections, which will help safeguard the interest of global investors," said the China Securities Regulatory Commission (CSRC).

Chinese and U.S. regulators met several times, with both sides showing determination in resolving the dispute, the CSRC added.

The move primarily indicates China's desire to ensure its companies remain listed in the U.S., however, the U.S. regulators have dismissed the rumors of an imminent audit deal with China.

Last month, the U.S. Securities and Exchange Commission (SEC) named 11 U.S. listed Chinese companies that could be delisted, including Baidu (NASDAQ: BIDU ), and Yum (NYSE: YUM ), among others.

The revised confidentiality rules underscore that Chinese companies are responsible for information security in offshore listings, minimizing the chances of confidential information making way to auditors working papers, said the Chinese regulator.

The draft rules now include procedural requirements, which require Chinese companies to provide a written explanation when sharing sensitive information with intermediaries including underwriters and auditors. However, the CSRC expects these occasions to happen very rarely.

The commission also said the draft rules will provide clear guidelines to help companies protect state secrets and hence ensure orderly securities issuance and listings.

By Senad Karaahmetovic

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