China Asks US-Listed Companies To Prepare For Audit Inspections: Will That Ease Delisting Fears For BABA And Others?

The backlash recently suffered by U.S.-listed Chinese stocks is partly attributable to fears of potential delistings in the U.S. The delisting threat stems from the SEC's mandate that the companies should share their audit inspection as a precondition for continued listing in the U.S.

It now appears that Chinese authorities are working overtime to sort things out.

What Happened: China has asked some domestic companies listed in the U.S. to prepare for increased audit disclosures, Reuters reported.

Chinese regulators are already mulling on allowing their counterparts in the U.S. to inspect audit working papers of companies that do not gather sensitive information, the report said.

China's Securities Regulatory Commission and other regulatory agencies met with companies such as Alibaba Group Holding, Inc. BABA, Baidu, Inc. BIDU and JD.com JD and urged them to prepare audit documents for the fiscal year 2021, the report indicated. Adding that regulators had asked the documents to be prepared, keeping in mind the demand by U.S. regulators for additional disclosure.

These companies were asked to check back with regulators if they are unclear about anything, including auditing and communications with U.S. regulators.

Related Link: Chinese Regulators Aren't Done Yet: Authorities Reportedly Seek Overhaul Of Tencent's Payment Platform

Why It's Important: It has to be noted that China began wielding the regulatory whip on high-profile Chinese internet companies since late 2020 in a bid to rein them in and prevent them from abusing their dominant market positioning.

Recent developments show that there has been a let up in the hostile stance of Chinese authorities toward domestic companies listed overseas.

Last week, Chinese Vice Premier Liu He said securities regulators of the U.S. and China are working on specific cooperation plans.

Earlier this month, the SEC released a list of five Chinese companies, which are not compliant with the U.S. law regarding audit disclosures. This triggered an across-the-board sell-off in Chinese stocks listed in the U.S. Alibaba, for one, went as low as $73.28 in the aftermath of the development.

A resolution on this issue is key for the beaten down U.S.-listed Chinese stocks to stage a sustainable recovery.

Photo: Courtesy of Charis Tsevis on Flickr