Chinese Regulator to Implement US Audit Deal, Open Markets

China vowed on Friday to implement its audit agreement with the United States and boost communication with foreign institutional investors.

Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), also told a forum on Friday the country would take more measures to open its markets, while putting Chinese firms’ offshore listings in a uniform regulatory framework.

The audit deal between Beijing and Washington will allow US regulators to vet accounting firms in mainland China and Hong Kong, potentially ending a long-running dispute that threatened to boot more than 200 Chinese companies from US exchanges.

Previously, Beijing had been reluctant to grant such access, citing national security concerns. Foreign listings by Chinese companies were also largely outside the purview of Chinese regulators.

“Next, we will roll out more forceful and profound opening measures,” Fang said.

Fang also said that the CSRC will work with Hong Kong financial regulators to expand the China-Hong Kong Stock Connect scheme, by including more eligible stocks, part of efforts to make the city a more appealing listing venue.

An increasing number of US-listed Chinese firms have conducted secondary or primary listings in Hong Kong, to mitigate the potential impact from the Sino-US audit dispute.

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Under a US law, Chinese companies not compliant with US audit rules will be prohibited from trading on US exchanges by 2024.

US regulators have selected e-commerce majors Alibaba Group and JD.com among other US-listed Chinese companies for audit inspection starting this month under the new agreement, sources said this week.

Meanwhile, legal experts and China watchers warn the two sides could still clash over how the accord is interpreted and implemented.

“My instinct is that now that China indicated that they want to avoid a mass delisting, that things will work out in the end,” Drew Bernstein, co-chairman of Marcum Asia CPAs LLP, said.

“But expect some bumps in the road and barrels of midnight oil being burned before they get there.”