China is preparing a system to sort Chinese companies traded in the US into groups based on the sensitivity of the data they hold, in a potential concession by Beijing to try to prevent US regulators from deleting hundreds of groups.
The system is designed to bring some Chinese companies into compliance with U.S. rules requiring public companies to allow regulators to review their audit files, according to four people with knowledge of the situation.
Chinese companies listed in the U.S. will be divided into three broad categories, two people said. The groups will be companies with non-sensitive data, companies with sensitive data and others with “confidential” data that will have to be deleted.
One of the people said Beijing was discussing whether companies in the “sensitive data” category could restructure their operations to meet the requirements, including by outsourcing the information to a third party.
The category system would be Beijing’s second major concession to remove obstacles allowing the U.S. full access to reviews. In April, it Changed a decade-old law which limited the data sharing practices of companies abroad.
The plan, which is under discussion and subject to change, follows months of deadlocked negotiations between Beijing and Washington over a U.S. requirement that Chinese companies and their accountants submit detailed audit documents or face expungement by 2024.
A mass delisting would represent a significant step toward an economic decoupling of the U.S. and China and threaten $1.3 billion in shareholder value. About 260 of China’s largest companies, including technology group Alibaba, fast-food firm Yum China and social media site Weibo, could be delisted from New York exchanges If they do not meet the requirements.
The China Securities Regulatory Commission, Beijing’s top securities watchdog, did not comment.
Beijing has generally resisted allowing Chinese companies to provide data to foreign regulators on national security grounds.
But under the tiered plan, “low-risk” data companies could make their audit records available to the Public Company Accounting and Oversight Board, the U.S. accounting watchdog, two of the people said. The low-risk category would likely include retailers and restaurant chains.
“Anything that falls into the Didi category, it’s obviously forbidden,” said the head of a major investment company in Hong Kong, referring to the travel group. Fined more than a billion dollars by Beijing last week for cyber security breaches.
U.S. officials are skeptical that Chinese companies will meet the full transparency standards required under the Foreign Corporations Accountability Act, the 2020 law that forced Chinese and Hong Kong companies to open their audit files.
“Although there have been ongoing and productive discussions between the US and Chinese authorities. . . Significant issues remain and time is quickly running out,” YJ Fischer, the SEC’s Office of International Affairs Director, said in a speech in May.
An agreement to provide access to audit files would be “just the beginning,” Fisher said. PCAOB officials also have to travel to China and conduct an audit of every Chinese issuer on the US list.
“I don’t know how we’ll ever fix this,” said the head of the investment firm. He added that Beijing and Washington were using the line of criticism for “political gains” and that relations were the worst they had been in 40 years.
“As an investor, I hope that both sides will be pragmatic enough.”
The PCAOB said in a statement that it “must have full access to the audit work papers of any company it chooses to review or investigate — without loopholes and without exceptions.”
Beijing plans three-tier data strategy to avoid US delistings Source link Beijing plans three-tier data strategy to avoid US delistings