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China, US reach initial deal on company audits

Chinese and U.S. regulators have reached a formal agreement that will allow U.S. auditors to inspect Chinese companies’ audit documents, a first step to prevent the delisting of more than 200 Chinese companies currently listed on U.S. markets, the report reported. Wall Street Journal.

The deal took months to close, comes after years of tension between the US and China, and will allow US inspectors from the Public Company Accounting Oversight Board (PCAOB) to travel to Hong Kong next month to begin the inspection process.

The inspections, which are a multi-step process, are expected to be completed by the end of the year to prevent the delisting of Chinese companies, and the PCAOB confirmed that it had obtained full access to the audit documents, audit personnel and any information needed to begin the process.

The joint announcement was made by the SEC, PCAOB and CSRC (China’s regulator) alongside the Ministry of Finance, followed shortly after five Chinese state-owned enterprises (SOEs) announced that they would voluntarily withdraw from US markets. State-owned companies had been one of the sticking points for access to audits due to China’s fear that classified government information could be revealed in the process.

“The voluntary delisting of US ADRs from five state-owned enterprises (SOEs) was a significant signal of an agreement, as these companies have sensitive information that could be seen during an audit review. Non-public companies, on the other hand, have nothing to hide, as many have stated publicly,” explained Brendan Ahern, CIO of KraneShares, on the China Last Night blog. “This is significant news as the Foreign Corporate Liability Act (HFCAA) has been an overhang on the space.”

It could be a major boon for U.S. investors, with $2 trillion of U.S. investment tied up in delisting-risk stocks, and could prove a powerful catalyst for upside momentum for corporate stocks. Chinese who had been weighed down by negative sentiment. and space risk for US and foreign investors.

“Given the significant valuation discount from the HFCAA, hope for a significant revaluation rebound,” Ahern said.

See also: Rumors of US-China audit deal send tech stocks skyward

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