Beijing, Washington urged to jointly settle audit dispute

Officials and experts have urged joint efforts from China and the United States to make the most of a three-year time window to resolve their worsening audit dispute on Thursday, as a bill that could block Chinese companies from US securities markets is almost certain to become law.

The bill, which passed in the US Senate in May and the US House of Representatives on Wednesday, was pending approval from the US president. It proposes delisting Chinese companies from US exchanges if they do not comply with local auditing rules for three consecutive years.

Despite the ratcheted-up delisting threats, there remains technical feasibility and a time window for both sides to resolve the issue based on open consultations, they said.

Foreign Ministry spokeswoman Hua Chunying said at a news conference on Thursday that the right way to solve the audit dispute would be by strengthening cross-border regulatory cooperation in a candid manner.

Brad Sherman, the sponsor of the bill in the House, claimed that it "is not anti-China, and it is not designed to prohibit the trading of Chinese companies".

Rather, the Holding Foreign Companies Accountable Act prov ides a three-year window during which China is expected to enter into a reasonable agreement with US regulators, the California Democrat said.

"There is still a lot of room for clarification and amendment after the passing of the bill. And three years remain before forced delisting materializes," said Channel Yeung, China market analyst at FXTM, a United Kingdom-based global trading platform.

Authorities from the world's two biggest economies have so far been unable to reach an agreement over the jurisdiction of inspection over audit work.

According to China's Securities Law, overseas regulators are not allowed to directly conduct investigations and collect evidence in the mainland. The bill, however, claims the right for the US Public Company Accounting Oversight Board, the organization overseeing audits of US-listed companies, to inspect the accounting firms which audit the Chinese issuers.

The China Securities Regulatory Commission has proposed a joint inspection mechanism for audit firms as a solution, with the latest version of the proposal sent to the US side in August. The commission said the board has confirmed receipt of the proposal and would examine it in due course.

"It (the audit dispute) is not an intractable problem," Fang Xinghai, vice-chairman of the CSRC, said last month at a forum. Fang expressed optimism about eventually resolving the dispute.

Officials and experts said the bill, once implemented, will not only impose delisting risks on US-listed Chinese firms, but also affect the position of the US as a global financial hub and result in losses for Wall Street investors.

"A broad range of Chinese companies listed in the US will face delisting risks if authorities from the two countries fail to reach an arrangement over audit inspection cooperation during the three-year window," lawyers from global law firm Baker McKenzie said in a note.

China will take necessary measures to protect its legitimate interests, Hua, the Foreign Ministry spokeswoman, said on Thursday. But at the same time, the bill, if it becomes law, will severely undermine global investors' confidence in the US capital market and its global status, she said.

Although the bill can deter companies indulging in false reporting from listing on US bourses, it may also keep quality Chinese firms from the US markets, due to some ambiguous standards in the bill Yeung said.

"This would be a big loss for the US capital market," Yeung said, pointing out that fast-growing tech firms such as Kuaishou and ByteDance are considering listing in Hong Kong instead of on US exchanges.

Dong Dengxin, director of Wuhan University of Science and Technology's Finance and Securities Institute said Hong Kong and mainland exchanges have become much more attractive for tech firm listings in recent years, which may lead more US-listed Chinese firms to return home for financing.

Reuters and Mo Jingxi contributed to this story.