MNI:China To Bend Not Buckle In U.S. Listing Standoff-Advisors

Signs China wants a deal with U.S. authorities to allow firms including Weibo to keep listings on U.S. stock markets do not mean Beijing will allow full access to information contained in the companies’ audit papers which it regards as sensitive to its national security, policy advisors and a market analyst told MNI.

While Chinese officials have sent positive signals about the prospects of maintaining U.S. listing as a financing source for local companies, saying both sides are working hard to reach an agreement, policy advisors noted U.S. regulators have not budged in their insistence that companies provide full access to audit documentation in line with regulations.

U.S.-listed Chinese stocks tumbled this month after the Securities and Exchange Commission said it has identified the first six Chinese companies failing to comply with the Holding Foreign Companies Accountable Act, which allows it to ban firms from trading on U.S. exchanges upon failure to present audits for three consecutive years.

“China will try its best to meet the U.S.’s reasonable requirement of information disclosure, but it will still seek to retain control over audit papers with sensitive data concerning national security and trade secrets,” said Liao Qun, chief economist with the Chongyang Institute for Financial Studies. Zhao Xijun, deputy dean of the School of Finance at Renmin University, agreed, saying China regards the confidentiality of some company information as a sovereign matter.

HONG KONG FALLBACK

The Hong Kong stock market is likely to take more measures to attract companies no longer able to list in the U.S., said Liao. These could include adding the listings to the cross-border Stock Connect scheme and expanding daily quotas to attract more mainland investors, Liao added.

“It’s also important to boost global investors’ confidence in the Hong Kong market, which is dependent on the outlook of the Chinese economy and the city’s continuing status as an international financial centre,” Liao said.

For the moment, a secondary listing in Hong Kong would be an option only for larger or medium-sized firms, said Wei HongXu, researcher with ANBOUND, noting that only a few dozen of the more than 200 U.S.-traded Chinese companies would be eligible. Smaller companies with no Hong Kong fallback option have seen their U.S. stocks fall by as much as 90% or more, Wei added.

Even if agreement is reached to safeguard China’s access to U.S. stock markets by the 2024 deadline, fears of additional U.S. restrictions on financial investment or sanctions will continue to dampen investors’ appetite for Chinese stocks, said Wei.

Both Liao and Zhao hold out hope that U.S. regulators may not want to completely shut out companies from the fast-growing Chinese economy, the world’s second-largest, a move which they say would undermine the status of the U.S. as a financial centre and of the dollar.

But Liao expected the U.S. to keep pressure on high-tech firms as China moves to upgrade its technological capacity under the Made in China 2025 policy. Firms identified by the SEC include pharmaceutical company HUTCHMED, biotech company BeiGene, biopharma company Zai Lab, and semiconductor firm ACM Research.

China's top securities regulator said on its website Thursday that China and the U.S. have the will to resolve the audit dispute, adding that it is normal procedure for the SEC to identify companies facing delisting risks before deliberating on the matter.

"Any outcome depends on the wisdom and original intentions of both sides," the China Securities Regulatory Commission said.