Following the U.S. and China’s announcement of a tentative agreement to permit U.S. auditors access to Chinese companies listed on the New York Stock Exchange, stocks of Alibaba (NYSE:BABA), JD.com (JD), Baidu (NASDAQ:BIDU), and many other Internet companies in China spiked on Friday.
This announcement from the Securities and Exchange Commission and Public Company Accounting Oversight Board, or PCAOB, is regarded as the “first step” in granting the PCAOB open access to inspect and investigate companies with headquarters in China and Hong Kong in a way that is “consistent with U.S. law.”
The Securities and Exchange Commission, the PCAOB, the China Securities Regulatory Commission, and the Ministry of Finance of the People’s Republic of China have approved the preliminary agreement.
Alibaba, Chinese tech stocks rise as audit deal sees greenlight
Along with rises of more than 6% for Alibaba (NYSE:BABA) and Pinduoduo (NASDAQ:PDD), other companies that witnessed gains of more than 4% included Baidu (BIDU), JD.com (JD), NetEase (NASDAQ:NTES), and Bilibili (BILI). Weibo (WB) increased by more than 13%, and other notable increases came from Kingsoft Cloud Holdings (KC) and VIPshop Holdings (VIPS).
According to the agreement, China will not be consulted or given any input when the PCAOB chooses the companies, conducts the audits, or imposes potential infractions during its investigation.
The statement of protocol, while deemed “important,” was merely the first step, according to the United States. By the middle of next month, the PCAOB plans to deploy inspectors on the ground. There were rumors that both parties were getting close to an agreement on Thursday.
The Holding Foreign Companies Accountable Act, or HFCAA, has been added to the list of businesses that run the possibility of being delisted. These Chinese firms include Alibaba (BABA) and Baidu (BIDU).
In accordance with the HFCAA, the PCAOB must identify any businesses “that it is unable to inspect or investigate fully due to a position adopted by an authority in the foreign jurisdiction.” According to the law, a business would be delisted from a U.S. exchange if the SEC identified it as such for three years in a row due to the PCAOB’s failure to adequately audit it.
Bridgewater Associates, a hedge fund, recently reported that it had made a number of changes to its portfolio, including selling off all of its positions in a number of Chinese tech firms, including Alibaba (NYSE:BABA), JD.com (JD), NetEase (NTES), and Bilibili (BILI).
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