The ideas on China's
future opening of the financial industry and the China-U.S. financial
cooperation are tractable from the recent audit policies of Chinese companies'
On April 2, the China
Securities Regulatory Commission (CSRC) issued the "Provisions on
Strengthening Confidentiality and Archives Administration of Overseas
Securities Offering and Listing by Domestic Companies (hereinafter
referred to as the 'Provisions')".
The Provisions is now open to publicly soliciting
comments for its revisions. According to the CSRC, to accommodate the new circumstances
and developments concerning the overseas securities listing and offering in
recent years, the revision has been intended to make some amendments primarily to
the initial regulations.
Among the specific amendments include: First, "adding the Accounting
Law of the People's Republic of China, the Law of the People's
Republic of China on Certified Public Accountants and others as its
superordinate laws and regulations"; Second, "expanding the scope to govern both direct and indirect
overseas listing, as is consistent with the Draft Provisions of the
State Council on the Administration of Overseas Securities Offering and Listing
by Domestic Companies"; Third,
requirements on companies' duty of information security by introducing clearer
guidance to domestic companies, relevant securities companies and securities
service providers on confidentiality and archives administration concerning
overseas securities offering and listing within China"; Fourth, "laying a solid institutional foundation for secure
and efficient cross-border regulatory cooperation and improving relevant
of the CSRC mentions that "in compliance with Article 177 of the Securities
Law, the revised Provisions stipulates that the overseas securities regulators or
relevant competent authorities may request to investigate, including to collect
evidence for investigation purpose or inspect Chinese companies that have been
listed or offered securities in an overseas market, or securities service
providers that undertake securities business for such domestic companies". At the same time, by "referencing
international common practice in cross-border audit oversight cooperation, the
revised Provisions deletes the stipulation that on-site inspections
shall be dominated by domestic regulators or depend on the conclusions of
inspections by domestic regulators."
The CSRC reveals that the revised Provisions stipulates a procedure that domestic Chinese companies shall
undertake to provide confidential and sensitive information for maintaining national information security.
The revised Provisions would be
helpful for relevant regulatory authorities and overseas regulatory agencies to
cross-border regulatory cooperation activities including joint inspections, and jointly safeguard the
rights and interests of global investors. The CSRC's officials emphasize further that the domestic companies are free to determine
their listing place on their own.
The revised Provisions cannot
be taken as a single policy as it involves audit supervision authority of
Chinese companies ensuing overseas listing. Among the main issues to be
resolved are the willingness and means of both China and the United States to
cooperate in audit supervision, which is the so-called "audit
sovereignty". In the past practice of Chinese-funded companies' listing
and financing in the United States, the matter has not been a great subject of
concern to the two sides. Venture capital seeks money from the United States — VC
and PE invest in Chinese enterprises — Chinese-funded companies go public in
the U.S. capital market — investment institutions withdraw; this circulation is
tacit for both sides. On the auditing process, China's policies have not been literally
opened to the United States, and the American regulatory authority has not been
In recent years, however,
with the tide of anti-globalization, principally under former U.S. President Donald
Trump, U.S.-China relations have deteriorated remarkably. The frictions between
the two countries span from trade to technology, finance, culture, and
education. Disagreement between both sides widens over the audit information
disclosure and supervision of Chinese companies after their listing in the
United States. With the current pattern of geopolitical friction, there is no
literal great solution. In the recent financial decoupling between China and
the United States, some Chinese concept stocks have often been suppressed in
the United States, and partly have returned to listing in Hong Kong. However,
regardless how deteriorates the U.S.-China relations is, in terms of policy,
the Chinese government has never supported the decoupling of the two countries'
economic and trade relations, and it is difficult for such to occur anyway.
Regarding the China-U.S.
audit and supervision cooperation, both countries have gradually become more willing
to come to a solution. The information disclosed by the two sides is similar.
Since August 2021, the CSRC's chairmen
and the U.S. Securities Regulatory Commission have held several meetings to
resolve issues related to the audit cooperation. As early as August 2020, Yi
Huiman, the CSRC's chairmen revealed that China has never
prohibited or prevented relevant accounting firms from providing auditing
documentation to overseas regulators. The CSRC discerns that in the essence of Chinese laws and regulations, information
including audit work should be exchanged through regulatory cooperation
channels and comply with relevant regulations on security and confidentiality.
This has been common in line with international practices. The Public Company
Accounting Oversight Board (PCAOB) states that by adhering to the basic
principles of being able comprehensively appraise the auditing documentation,
China and the United States should be able to reach practical solutions. As the
inspections and investigations of accounting firms based in Mainland China and
Hong Kong are consistent with the collaboration that the United States has
achieved in other countries, PCAOB aspires to reach such a progressive
partnership relation with the Chinese authority.
In March this year,
the Financial Stability and Development Committee under the State Council pointed
out that regarding the Chinese concept stocks, the regulatory agencies of China
and the United States have maintained good communication with positive progress
in forming a cooperation program. Overall, China and the U.S. are rarely
improving well in auditing and supervision cooperation, given the friction and
sanctions in their bilateral relations in recent years. As pointed out by ANBOUND,
China is looking forward to cooperate with the United States in finance
industry. The development of the Chinese market and companies are open to
cooperation on the basis of rules and regulations, and this direction might
become China's future policy orientation. Although there might still be economic-trade-geopolitical
frictions in the two countries' relations, judging from the current cross-border
audit cooperation, there might still be a possibility for further economic and
financial cooperation between China and the United States in the future.
on Strengthening Confidentiality and Archives Administration of Overseas
Securities Offering and Listing by Domestic Companies" has recently been issued by China Securities Regulatory Commission. This is one measure that
China applies to regulate China-U.S. audit cooperation. This rare progress in
the bilateral relations, given the existing economic frictions and inhibitions,
provides an insightful reference for future cooperation between the two
countries in the finance industry.
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