Trump threatened Chinese stocks: delisting without auditing! Is there a chance for China Concept Stocks?

On August 6, U.S. time, the U.S. Department of the Treasury’s official website released the “Report on Protecting U.S. Investors from Major Risks in Chinese Companies”, which put forward 5 audit recommendations for Chinese companies listed in the United States. These include raising the listing threshold for Chinese companies planning to go public in the United States, and requiring Chinese concept stock companies that are already listed in the United States to submit audit work papers to the Public Company Accounting Oversight Board (PCAOB), otherwise the company will face delisting penalties and be forced to Delisting.
According to the original report, the U.S. government requires that all companies that are listed for the first time and have been listed and traded strengthen audit standards:
The American Public Company Accounting Oversight Board (PCAOB) has the right to consult the working papers of the major audit firms of listed companies;
If the company is limited by government restrictions and cannot provide audit papers, the company can use ”
Joint audit
“-Hiring an American firm as the main audit firm, and jointly responsible for the audit work with the Chinese audit firm.
Effective node:
For companies preparing to go public in the United States, the standard
Effective immediately
, The company can be listed only after meeting the standards;
For companies that have been listed in the United States, if they cannot meet the US audit requirements, they must
January 1, 2022
Before delisting.
On August 10th, US time, US Treasury Secretary Mnuchin publicly affirmed the audit requirements in the report.
Means listed companies in the U.S. including Chinese companies,
If it does not meet the US audit requirements by the end of 2021, the company will be delisted
.
Source: U.S. Department of the Treasury official website
Impact on China Concept Stocks
What is China Concept Stock:
For foreign investors, Chinese concept stocks are Chinese stocks listed overseas, but the actual controller or the largest controlling right of the company belongs to a Chinese private enterprise or individual company.
Delisting of Chinese concept stocks:
The market closed last Friday (August 7th). Affected by the threat of delisting, a number of Chinese concept stocks suffered collectively, with a drop of more than 5%. In descending order of decline, GSX fell nearly 19%, Huanju fell below 13%, Bilibili fell by more than 6%, Alibaba fell by more than 5%, and JD.com fell by 4%.
However, this is not the first time that Chinese concept stocks have been criticized by US regulators.
Behind the delisting storm of China’s concept stocks (timeline combing):
In February 2020, Muddy Waters (US stock short selling agency) issued a short report on Ruixing Coffee, accusing it of long-term financial fraud.
In April 2020, Ruixing Coffee blew up its financial fraud scandal, and its stock price plummeted after the market; then a large number of other Chinese concept stocks were also shorted, such as GSX, Good Future, etc.
At the end of April, Jay Clayton, chairman of the US Securities Regulatory Commission (SEC), warned investors not to invest in Chinese concept stocks and publicly questioned the quality of China’s concept stocks’ financial reports and information disclosure.
May 2020,
The US Senate passed the “Foreign Company Accountability Act”, requiring foreign companies to accept the audit and supervision of the US Public Companies Accounting Oversight Board (PCAOB) for three consecutive years and prove that they are not owned by foreign governments, otherwise they will be prohibited from trading in the United States
. A large number of Chinese concept stock giants are therefore in danger of being delisted.
In June 2020, Luckin Coffee was suspended from the Nasdaq and filed for delisting. U.S. President Trump announced that he would let his financial market working group announce the specific recommendations of the “China Stocks Act” within 60 days.
Is it illegal to let the US audit? The SFC responded:
On August 8, the person in charge of the China Securities Regulatory Commission answered reporters’ questions on the “Report on Protecting U.S. Investors from Major Risks of Chinese Companies” and clearly stated
China has never prohibited or prevented relevant accounting firms from providing audit work papers to overseas regulators
.
It turned out that as early as 2013, the China Securities Regulatory Commission signed a memorandum of understanding on law enforcement cooperation with the American Public Company Accounting Oversight Board (PCAOB), and China agreed to provide it to the US Securities Regulatory Commission and PCAOB in accordance with the procedures.
Company audit work papers that do not involve state secrets
.
Since 2019, the Chinese regulatory authorities have repeatedly communicated with the United States Securities Regulatory Commission (SEC) and the American Public Company Accounting Oversight Board (PCAOB) on the joint inspection plan of accounting firms.
Recently, on August 4, 2020, the Chinese regulatory agency also sent an updated proposal to PCAOB based on the latest needs and ideas of the US.
What’s the next step for Chinese concept stocks? Joint audit or return to Hong Kong listing?
According to data from CICC, a total of 276 companies listed in the United States