China warns audit plans will drive companies from US exchanges

China’s securities regulator has hit back at a proposal by Washington that could effectively force companies from the country to delist from US stock exchanges, saying such a move would “weaken confidence” in American markets.

The US Senate last week unanimously passed a bill that would force companies to delist from US stock exchanges if they do not comply with US regulatory audits, something many Chinese companies are unwilling or unable to do.

On Sunday, China’s securities regulator issued an unusually stern response, saying the proposal “was directly targeted at China”, and “politicises securities regulation”.

The bill would “weaken the confidence of global investors in US capital markets, and their global position,” said the China Securities Regulatory Commission.

“We believe that global investors will make their own wise choices, according to what benefits them the most,” the CSRC added.

Although the US and China have agreed a pause to the escalation of trade tariffs, tensions between the two powers have been escalating on other fronts, including Beijing’s move to impose a new national security law on Hong Kong.

On Sunday, thousands of demonstrators took to the streets of the city centre in the former British colony to protest against the move, leading police to fire tear gas and water cannons.

Mike Pompeo, US secretary of state, last week described the law as a “death knell” for autonomy in the financial hub and warned it would “impact” Washington’s decision on whether to extend the special trading status currently afforded to the territory.

The US recently tightened its sanctions on Huawei, leaving the China’s telecoms company to warn its survival was at stake, while earlier this month, president Donald Trump ordered the main federal government pension fund not to invest in Chinese stocks.

Wang Yi, China’s foreign minister, said on Sunday that political forces in the US were trying to push the two countries into a “so-called new cold war”.

The US-China dispute over securities regulation comes after the collapse of Luckin Coffee, a New-York-listed coffee chain that had admitted to fabricating over $310m of its sales. The revelation led to share prices plummeting for a number of other Chinese companies that had recently listed in New York.

Baidu, China’s dominant search engine with a market capitalisation of around $35bn, said last week it was reconsidering its Nasdaq listing in light of the Senate bill. Baidu’s chief executive said the company was mulling a secondary listing in Hong Kong.

Chinese tech companies have long tapped US stock markets. At home, they face capital controls that limit their access to dollars, and more stringent listing requirements. Chinese regulators have tried to get start-ups to list at home on Shanghai’s new “Star” board, which has not proved as lively as hoped.

The Public Company Accounting Oversight Board, the US accounting body, has long complained of having access blocked to the accounts of companies registered in China and Hong Kong by the local authorities.

The US bill, which is yet to be passed by the House of Representatives, means companies would be delisted if they do not comply with audits by the PCAOB for three consecutive years. Foreign companies would also be required to disclose whether they are owned or controlled by a government.

“This bill completely ignores the longstanding co-operation between the US and China’s regulatory agencies on strengthening oversight and audits,” the CSRC said on Sunday, citing recent exchanges with the PCAOB.

But, the PCAOB wrote in a statement several months ago, “Chinese co-operation has not been sufficient for the PCAOB to obtain timely access to relevant documents and testimony necessary to carry out our mission, nor have consultations . . . resulted in improvements.”

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