Push for coupling, not delisting: China Daily editorial

The United States Securities and Exchange Commission has added another 12 US-listed Chinese companies to its non-compliant list of the Holding Foreign Companies Accountable Act.

Following similar SEC moves since March 10, the one on Tuesday is the fourth, and adds the largest batch of Chinese companies to the HFCAA list, increasing the number on the list to 23. Given the bleak economic and political relations between the two countries, it is widely believed the list will get longer as time goes by, and predictions of an ultimate exodus of Chinese companies from the US stock market have been generally considered realistic.

Under the terms of the Donald Trump-era HFCAA, which was signed into law in December 2020, in part as the last US administration's broader attempt to suppress and decouple the Chinese and US economies, publicly traded companies in countries that block audit inspections by US regulators can be delisted after three years of noncompliance beginning 2021. The Joe Biden administration is apparently following its predecessor's lead, and in some ways is fast-forwarding the process.

All the 23 Chinese companies have been notified by the SEC they could be delisted if they don't subject themselves to a US Public Company Accounting Oversight Board inspection.

The US demand to inspect the audits of Chinese companies puts more than 200 Chinese companies at risk of delisting, as they have no choice but to comply with a Chinese requirement that inspections be carried out by Chinese regulatory agencies, with foreign authorities relying on their audit results.

Nonetheless, the regulatory issue between the two countries' securities authorities is a technical one that can be properly resolved through constructive engagement.

However, it was generally considered that the political, or more accurately, the increasingly politicized economic and trade ties between the two countries didn't allow for rational deliberation on the issue.

Yet Chinese and US regulators have engaged in several rounds of talks on auditing supervision, and it seems that an accommodation has been agreed. The China Securities Regulatory Commission has announced its proposal for new draft rules that would establish a "cooperation mechanism" for cross-border inspections.

Such a development would be welcomed not only by those Chinese companies facing delisting in the US, but by US investors, too. The latter have enjoyed their share of the dividends of the robust Chinese economy, with China-concept stocks popular on the US securities market.

Despite the seemingly powerful US push toward de facto decoupling of the two economies, the move by the CSRC shows that the rhetoric about cooperation wherever possible can be delivered on if both sides are willing to engage with each other with the goal of resolving their differences and problems.