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 cant 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 werent going to wait around: five state-owned firms said this month that theyd voluntarily leave before they were kicked off.

Theres 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: Its good to be open.
The agreement was welcome news for US-listed Chinese companies: theyve 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 didnt have quite the same fortune: the Federal Reserves 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 wouldnt be swayed by even a couple months worth of promising inflation data.

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

OpenText Cracks Out The Check Book

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.