Chinese stocks surged on Friday after a report suggested that Beijing will grant US auditors access to company financials.- The move would help satisfy a new US law that would delist Chinese stocks if they don't open their books to US auditors.
- Baidu was named earlier this week by the SEC as a company that was not in compliance with the new law.
Chinese stocks listed on US exchanges surged on Friday after a report suggested that authorities in Beijing will grant US auditors access to the financials of Chinese companies in order to prevent future delistings.
According to Bloomberg, Chinese authorities will give US regulators full access to auditing reports of the majority of the more than 200 Chinese companies that are listed on the New York Stock Exchange and Nasdaq. The move could come as soon as the middle of this year, according to Bloomberg, which cited people familiar with the process.
Shares of Baidu, which was identified earlier this week by the SEC as non-compliant with the new law, surged more than 9% in early Friday trades. Alibaba stock was up more than 7%, while the MSCI China ETF jumped 5%.
But not all Chinese companies will give US auditors access to their books and will instead face likely delisting, according to Bloomberg. Those companies include state-owned-enterprises and private companies that have sensitive data.
Details of the potential concession from China are still under discussion and can change, the report said. The ongoing discussions in Beijing could also address the offshore listing approval process known as variable interested entities, which is how Alibaba went public in the US. A deal is ultimately hoped to be reached during the summer, according to the report.
The development is somewhat of a surprise to investors given that SEC Chairman Gary Gensler said earlier this week that it's a very real possibility that Chinese stocks could be delisted on US exchanges once a 2024 deadline to comply with the auditing law is reached.
"There have been thoughtful, respectful, productive conversations, but I don't know where this is going to end up. It's up to the Chinese authorities, and it could be frankly a hard set of choices for them," Gensler said.
The Holding Foreign Companies Accountable Act took effect on December 18, 2020. It requires the SEC to identify publicly traded foreign companies on US exchanges that will not allow a US auditor to fully inspect their financial books. The SEC ultimately has the power to delist Chinese companies if for three straight years they do not allow a US accounting firm to conduct an audit of their financial statements.
China's potential concession would help prevent further decoupling of two major economies that have been at odds in recent years. Former President Donald Trump levied a number of tariffs on Chinese goods, and the Biden administration has been slow to roll those back.