SEC may delist ‘Chinese Google’ if audit requests not met

  • The SEC added Baidu to a provisional list of companies that failed to meet US audit requirements.
  • If these companies continue to flout these requirements, they could be asked to delist in the United States.
  • Beijing has rejected US requests to review the audit books of its US-listed companies.

The Securities and Exchange Commission (SEC) warned Chinese search giant Baidu on Wednesday that it could be delisted from U.S. exchanges if it fails to comply with audit requirements.

The SEC did so by adding Baidu to a provisional watch list that names foreign companies that have not given US authorities full access to their audit books.

Google is among several Western tech sites blocked by China’s “Great Firewall”. Baidu’s dominance in online search in China has earned it the nickname “Chinese Google”. It is the largest Chinese technology company by market value on the SEC’s provisional list, which also includes China’s version of Twitter, Weibo and online video site iQiyi. These Chinese tech companies now have 15 business days to challenge the SEC’s decision.

Companies conclusively identified by the SEC will be required to comply with US Public Accounting Oversight Board (PCAOB) audits for three consecutive years. If they don’t comply, they can be expelled from US stock exchanges entirely.

The SEC’s decision on Wednesday escalates an ongoing dispute between U.S. and Chinese regulators over granting U.S. officials full access to audit data from U.S.-listed Chinese companies.

The watchlist was compiled based on the Foreign Companies Liability Act 2020, which requires listed companies to prove that they are not owned or controlled by foreign governments. Even though the legislation applies to companies from all countries, its sponsors have made it clear that they are targeting Chinese companies. Last year, the NYSE delisted China Unicom Hong Kong, China Mobile and China Telecom for noncompliance.

Earlier this month, Securities and Exchange Commission Chairman Gary Gensler said the SEC was reviewing 248 additional Chinese companies with a market capitalization of around $2.1 trillion.

If China fails to provide access, Gensler said, these companies would be barred from doing business in the United States “potentially as early as 2024.”

Even though Beijing has rejected those demands citing national security concerns, it has in recent weeks signaled that it is ready to find a compromise.

Chinese authorities have asked several big tech companies to prepare for more audit disclosures to U.S. authorities to stay listed in America, Reuters reported. However, the PCAOB told Reuters it still did not know if full access would be granted.

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