FAST NEWS: U.S. Warns of ‘Significant Issues,’ ‘Time Running Out’ to Reach Securities Deal With China

The latest: Despite recent progress in negotiations for an information-sharing agreement between U.S. and Chinese securities regulators, “significant issues remain and time is quickly running out” to reach such an agreement, a U.S. Securities and Exchange Commission (SEC) official said.

Looking Up: Recent talks with the China Securities Regulatory Commission (CSRC) have been “productive” and “constructive,” Y.J. Fischer, director of the SEC’s Office of International Affairs, said in remarks published online on Tuesday.

Take Note: Fischer warned that even if an agreement is reached, more time will be needed to bring Chinese companies into compliance with the U.S. Holding Foreign Companies Accountable Act (HFCAA). He said the accounting regulator that works with the SEC would need time to determine whether it could get information from China and Hong Kong in line with terms of the agreement.

Digging Deeper: The latest comments continue a recent trend of cautious remarks from the SEC, in contrast to a more optimistic tone from the CSRC and other Chinese officials. The two sides are trying to negotiate an information-sharing agreement that would allow the U.S. Public Company Accounting Oversight Board (PCAOB) to obtain audit records from the auditors of U.S.-listed Chinese firms. Chinese law currently bans those auditors from sharing their records, which China considers state secrets. Passed by the U.S. in late 2020, the HFCAA gives China three years to grant such access to the PCAOB. Otherwise, the SEC could start to forcibly delist the more than 250 Chinese companies currently listed in the U.S.

Market Reaction: U.S.-listed shares of Chinese companies fell on Tuesday, with names like Alibaba (BABA.US; 9988.HK), JD.com (JD.US; 9618.HK) and Baidu (BIDU.US; 9888.HK) all down between 5% and 7%. 

Reporting by Doug Young