The US Can Finally Vet Chinese Companies

Image source: Cinemato - Shutterstock

What's going on?

The US and China reached a landmark deal on Friday, which could avoid the delisting of US-listed Chinese stocks.

What does this mean?

China and Hong Kong are the only jurisdictions in the world that block US regulators from inspecting their companies’ account audits, citing national security and confidentiality concerns. That means regulators can’t vouch that the US-listed businesses comply with things like accounting rules, which became a sticking point in 2020 when the US passed a law saying those firms could be booted from American exchanges. The law put about 200 companies at risk, but some weren’t going to wait around: five state-owned firms said this month that they’d voluntarily leave before they were kicked off.

There’s nothing like a threat to get decisions made: Washington and Beijing finally made a deal on Friday that means US regulators can review audit documents of Chinese businesses that trade in the US. Regulators have jumped at the chance, and plan to have inspectors on the ground as soon as the middle of next month.

Why should I care?

For markets: It’s good to be open.
The agreement was welcome news for US-listed Chinese companies: they’ve seen their stocks fall recently, but news of the agreement has made it less likely that big investors will be forced to sell their shares ahead of a delisting. That might just be why an index tracking some of the biggest US-listed Chinese companies rose by its most since June on Friday.

Zooming out: No pain, no gain.
US stocks didn’t have quite the same fortune: the Federal Reserve’s chairman said on Friday that it would keep “forcefully” attacking inflation with higher interest rates, which sent the US stock market down over 2%. The country’s central bank admitted those rates would likely cause “some pain” to the economy too, but said it wouldn’t be swayed by even a couple months’ worth of promising inflation data.

Originally posted as part of the Finimize daily email.

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