Dispute raises doubt for China stocks in US market
By | Associated Press – 3 hrs ago
BEIJING (AP) — A mounting dispute between Washington and Beijing over access to records of Chinese companies
with U.S.-traded shares might force major corporate names such as oil
giant PetroChina and search engine Baidu to withdraw from American stock exchanges.
The dispute highlights the clash between heightened U.S. anti-fraud efforts and official Chinese secrecy despite Beijing's desire to profit from deeper links with the global economy.
This month, the U.S. Securities and Exchange Commission
accused the Chinese affiliates of five major accounting firms of
impeding fraud investigations of nine companies by failing to hand over
documents. Separately, an American panel that oversees accounting wants
to inspect Chinese auditors of U.S.-traded companies.
Beijing has resisted expanding access to corporate records as a violation of its sovereignty.
Without a compromise, China-based
accountants might be stripped of authorization to prepare financial
reports required by U.S. regulators, said Paul Gillis, an accounting
professor at Peking University's business school. Eventually, that could
make it impossible to trade Chinese shares in the United States.
"I think it's become fairly
difficult for a deal to be done," Gillis said. "The SEC action makes it
seem as if the Chinese have to give in. Any concessions will have to
come from the Chinese side, which will make them lose face, so they are
unlikely to give way on that."
No changes are required immediately. A ruling on the SEC's Dec. 4
complaint is not due until next year. That allows time for negotiation
and, if no settlement is reached, for companies to buy back their shares
or move to Hong Kong or another non-U.S. exchange.
Still, the wholesale departure of
Chinese companies from American stock markets would be a setback to
closer financial ties between the world's two biggest economies. Chinese
companies are expanding abroad and acquiring assets such as state-owned
CNOOC Ltd.'s $15.1 billion purchase this month of Canadian oil and gas producer Nexen.
"We may soon see the market-wide delisting of all Chinese companies
from U.S. stock exchanges," warned an American investment newsletter,
The Motley Fool, last week.
Other governments including the
27-nation European Union also have resisted U.S. pressure for more
access to corporate records but most reached compromises that satisfied
Washington. That often involves joint audits by American and local
regulators.
Chinese companies have raised more money in U.S. stock markets in the
past decade than companies from any other country except the United
States itself.
Chinese companies raised billions
of dollars by selling shares to American investors since the late
1990s. Many were private companies that could not raise money on Chinese
exchanges, which were created to finance state industry, or wanted to
show they could meet more rigorous U.S. reporting standards.
Beijing encouraged the move to finance private business and speed economic development.
More recently, however, Beijing has encouraged companies to sell shares on China's own exchanges to help develop its financial markets and give Chinese families better investment choices.
Many U.S.-traded Chinese companies are small but some are industry
leaders such as PetroChina Ltd., Baidu Inc. and Internet portals Sina
Corp. and Sohu Inc. with outstanding shares worth tens of billions of
dollars. They are widely held by investment funds and individuals. A
departure would reduce the options American investors have for profiting
from China's rapid economic growth.
Spokespeople for Baidu Inc., traded on the Nasdaq market, and solar panel maker Suntech Power Holdings Ltd.,
traded on the New York Stock Exchange, declined to comment on how they
might be affected. PetroChina did not respond to a request for comment.
A series of accounting scandals at Chinese companies has battered
share prices in the United States, costing investors several billion
dollars.The SEC wants to see "work papers," or corporate documents used by auditors to prepare financial reports for nine Chinese companies suspected of fraud. Its complaint said Chinese affiliates of the "Big Four" accounting firms — Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers — and a fifth firm, BDO, failed to comply with orders to hand over the documents.
The accountants say Chinese
national secrets laws bar the release of documents, but the SEC said
firms "face serious consequences" if they conduct audits knowing they
cannot comply with U.S. disclosure requirements.
The SEC complained that it had sent its Chinese counterpart, the China Securities Regulatory Commission,
21 requests for assistance in 16 investigations since 2009 and failed
to receive any audit papers. It said negotiations aimed at establishing a
framework for sharing information have made no progress.
Separately, the accounting
oversight panel created by a 2002 anti-fraud law, says it is required to
conduct regular inspections of Chinese auditors of companies with
U.S.-traded stocks. Chinese authorities have resisted that.
Pressure from American regulators
could accelerate a trend among some Chinese companies to buy back their
U.S. shares and move to China's domestic exchanges or go private.
U.S.-traded Chinese companies saw share prices plunge following the
2008 global crisis, while economic growth at home, even after a recent
decline, is still forecast at about 8 percent this year. Rising Chinese
incomes are creating a bigger pool of money for investment.
In the biggest delisting this
year, Focus Media Holding Co. said in August its chairman and private
equity firms would buy back its U.S. shares in a deal that valued the
Shanghai-based advertising company at $3.5 billion. Company managers
complained its U.S. share price was too low and failed to reflect the
strength of its business.
Smaller companies also are
pulling out of the United States, helped by financing from Chinese
institutions that are flush with cash from the country's economic boom. A
business magazine said the government's China Development Bank has lent
$1 billion to companies this year to buy back U.S. shares and move
their listings to domestic exchanges.
Beijing has made it easier for
private companies to join China's two exchanges in Shanghai and the
southern city of Shenzhen, though most listings still are for state
enterprises. The Shenzhen exchange created a second board for small
companies, imitating the U.S.-based Nasdaq market.
If Chinese companies leave
American financial markets, "the only one that gets hurt is the U.S.
exchanges that lose some business but gain credibility for having high
standards," said Tsinghua University's Gillis.
"And the accountants get rich,
because if they move to Hong Kong, they have to be audited again," he
said. "So perversely, the accountants are probably the biggest winners
if this thing blows up."
end quote from:
China and the U.S. definitely operate on different rules. But I think what is happening is the corruption within the Chinese Communist Party that is infecting Chinese Corporations to a degree that is toxic to the U.S. Stock Market. So, many Chinese Corporations that will be unable or unwilling to comply with U.S. rules won't be a part of the U.S. Stock Market anymore. Is it a good thing or a bad thing or just the beginning of a larger trade war with China? I don't know but somehow the World historic resemblance to the late 1930s is sort of a culturally uneasy thing for the world at this time.
No comments:
Post a Comment