The SEC announced an agreement to allow US officials to audit Chinese firms, potentially avoiding the delisting of hundreds of Chinese stocks

• The US and China on Friday reached a preliminary deal to allow American inspectors to audit Chinese firms.
• US inspectors may travel to China and Hong Kong to start their examinations in September.

The US has reached a preliminary deal with China that would allow American regulators to inspect the auditing records of Chinese companies listed in the US, an agreement that may keep shares of about 200 companies trading in New York.

Among the terms, the US Public Company Accounting Oversight Board will be able to see complete audit work papers without any redactions and inspectors will have direct access to take testimony from all personnel working at the auditing firms, according to a statement released by Securities and Exchange Commissioner Gary Gensler on Friday.

Inspectors "must be on the ground by mid-September if their work has any chance to be successfully completed by the end of this year," said Gensler about having a framework in place before PCAOB inspectors were to travel to China and Hong Kong.

If the inspectors are prevented from carrying out their work, roughly 200 China-based companies with shares listed in the US will face prohibition of trading in their shares, the SEC head said.

China and the US have been locked in a dispute over inspections for more than a decade. Chinese officials have been reluctant to allow overseas regulators to inspect the records of local accounting firms because of national security concerns.

US-listed shares of Alibaba and other Chinese companies had risen after news of the preliminary agreement then pared gains or turned lower. The broader US stock market flipped down following a speech on monetary policy by Federal Reserve Chair Jerome Powell. NYSE-listed shares of online retailer Alibaba trimmed their gain to 0.3%. E-commerce company JD.com pared its advance to 0.3% and search engine heavyweight Baidu moved down 0.7%.

China and Hong Kong have been the only two jurisdictions not complying with US auditing regulations while more than 50 others have met the requirements, said Gensler.

The PCAOB signed the preliminary agreement with the China Securities Regulatory Commission, or CSRC, and China's finance ministry.