China Makes Concessions in Call for Talks
China is proposing to resume tests of processes by which U.S. regulators would audit some of its most sensitive companies.
In an interview in Beijing on Wednesday, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), said China is “sincere” in wanting to solve the standoff over the accounting issues.
U.S. officials have recently stepped up a push to gain access to audit working papers for Chinese companies that trade in the United States—threatening rules that would trigger delisting shares such as those of Alibaba Group Holding Ltd. and Baidu Inc. if the request isn’t met. The standoff has dogged relations for years and deteriorated since 2017, after trial inspections undertaken jointly by Chinese and American regulators failed to yield an agreement.
Fang said on Wednesday that earlier this month, the CSRC sent the U.S.’s Public Company Accounting Oversight Board (PCAOB) a fresh proposal, which would allow the United States to pick any state-owned Chinese enterprises for another trial run. However, China would still insist on redacting some information because of national security concerns, a condition Fang described as an international norm.
“As both sides gain confidence, we can proceed to handling these sensitive issues so that both sides are satisfied,” he said. “They are a bit more urgent. We are very sincere, but on the other hand we are also serious about protecting national security information.”
Fang said he reached out to the United States to hold a video or phone meeting, but has yet to get a response. As to why no pilot auditing projects have taken place since 2017, Fang said it could be due to the “general atmosphere.”
When Fang went to the U.S. in September 2019 to try to solve this issue, the chairman of the PCAOB refused to meet him and instead sent one of his department heads, said a person familiar with the matter, who declined to be named discussing a private matter. In the past, the previous PCAOB chairman was happy to meet and talk, the person said.
After a protracted trade dispute that has roiled markets over the past three years, tensions between China and the United States are now spilling over onto the financial and technology sectors with tit-for-tat sanctions over a crackdown on Hong Kong and threats against some of China’s biggest companies.
Fang said that no one stands to gain from a financial decoupling of the two nations and that it would be bad both for New York as a financial center and for Chinese companies.
The disputes are playing out against a backdrop of China this year opening its financial markets more fully to Wall Street giants such as Goldman Sachs Group Inc., counting on them to provide fresh investments and foster a more competitive local industry.
This has proceeded unhindered, with the most approvals being granted to U.S. financial institutions, and is expected to gain pace as the Chinese economy gathers steam, Fang said.
“The presence of foreign investors in our market has provided kind of an anchor,” he said. “The continued presence of foreign investors in our market will help promote the quality of our stock market. Both from a demand and supply point of view I do expect that foreign participation in our market, whether its providing services or providing capital, will accelerate.”
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