On March 10, 2022, the U.S. Securities and Exchange Commission (SEC) releasedannouncementunder the Foreign Company Accountability Act (HFCAA), willBeiGene、Yum China、Zai LabMorimisemiconductor、Chi-MedFive companies were included in the provisional list. Although the HFCAA came into effect in December 2020, the SEC has already issued relevant implementation rules and explanations, and even the issue of related accounting papers has long been a commonplace issue, but there are still some voices in the market who have amplified or even misinterpreted this issue. The background and consequences of the announcement led to some biased misunderstandings such as “China concept stocks are about to be delisted collectively” and “listed companies will be delisted within a 15-day appeal period”, which caused a certain degree of panic and the market fluctuated greatly. So what are the facts? Are Chinese concept stocks facing a situation of collective delisting? We might as well analyze this event and its impact from a more objective perspective.
First of all, the SEC’s identification is a routine step implemented in accordance with the published laws and rules, not an emergency, and inclusion in the temporary list does not mean an immediate risk of delisting. Under the HFCAA, if a public company employs an auditor registered outside the United States and the US Public Company Accounting Oversight Board determines that a full inspection or investigation cannot be carried out in its place of incorporation, the SEC has a duty to continue to identify and disclose the company . The SEC started the formal identification work based on the 2021 annual report disclosed by the listed company. The aforementioned five companies are all companies that have recently published their annual reports, meet the relevant circumstances, and were naturally identified. For reference, the SEC conducted an investigation based on the 2020 annual reports of listed companies. At that time, it showed that 273 issuers were likely to be identified, of which 22% were registered in the United States and 78% were registered outside the United States. Therefore, the list is expected to gradually expand as more Chinese concept stocks and other foreign companies publish their annual reports in the coming months. After being included in the provisional list, the company will not be required to be delisted immediately, but will continue to undergo inspections for three consecutive years. US delisting.
It is not difficult to see that the announcement of the first batch of lists has already been followed, and it is not an emergency, and there is a buffer period in the relevant regulations. There is irrational panic in the intraday trading of U.S. stocks to a certain extent. Although there is still market panic since the opening of the U.S. stock market the next day, investors are gradually realizing this.
Secondly, for a long time, the listing of Chinese stocks in the United States has achieved a win-win situation for Chinese companies, emerging industries and international investors, which has proven positive significance. Through the overseas capital market, many Chinese companies have used global capital to obtain support for development and improve corporate governance, and a large number of outstanding companies with high competitiveness on a global scale have emerged, which has also effectively promoted Chinese companies and capital. The opening of the market to the outside world. For China’s emerging industries, they have achieved their own rapid development with the help of international capital; for international investors, they can share growth dividends and obtain considerable returns by investing in companies from China, the most dynamic emerging market in the world. Over the past two decades, the exploration of this method has finally formed a stable and win-win situation, which is a microcosm of the cooperation and mutual benefit between China and the United States. Today, we believe that a proper solution to the issue of Chinese stocks will serve the common interests of the development of the two countries’ markets and global investors.
Thirdly, the regulatory dialogue between China and the United States has been continuously, actively and positively advancing. We also noticed that within 24 hours after the SEC issued the relevant announcement, Chinese regulators also responded positively. In the early morning of March 11, the China Securities Regulatory Commission responded to the reporter’s question and reiterated that the China Securities Regulatory Commission has always adhered to the spirit of openness and cooperation, and is willing to solve the problems of inspection and investigation of relevant firms by the US regulatory authorities through regulatory cooperation, which is also in line with international practices. ; Recently, the China Securities Regulatory Commission and the Ministry of Finance have continued to communicate with the US Public Company Accounting Oversight Board (PCAOB) and have made positive progress. On March 11, it was reported by the media that the dialogue and consultation between Chinese and American regulators on audit and supervision cooperation went relatively smoothly. As a participant in the capital markets of the two places, we believe that we can find a solution that maintains the information security of the company’s location while meeting the reasonable regulatory requirements of the place where it is listed. We believe that the regulators of both countries are in earnest discussions with a view to properly resolving their differences, and we are optimistic that the two sides will eventually be able to reach a mutually acceptable solution. Both Chinese and American regulators have rich experience and foundation in cross-border regulatory cooperation. We believe that the regulators of both countries have enough wisdom and patience to solve this problem and avoid the collective delisting of Chinese concept stocks in the long run. A lose-lose situation.
Finally, we believe that the proper resolution of the HFCAA issue will not only help deepen the regulatory cooperation between China and the United States, and reduce the risk of the Chinese stock market, but will also inject confidence into the global capital market. If the regulators of China and the United States can finally reach an effective cooperation mechanism under the premise of complying with their respective legal regulations and regulatory requirements, it is expected to become a classic example of cross-border cooperation that can be used for global reference, and jointly promote the global capital market. opening and development.
The river will not flow backwards. China has always unswervingly expanded its opening up, and capital market supervision has also irreversibly advanced in reform and development in opening. In December 2021, the China Securities Regulatory Commission, together with the relevant departments of the State Council, drafted the draft regulations on the management of overseas offering and listing filing of domestic enterprises, and has completed the public consultation. The draft creatively regulates the filing method for overseas listings. It is proposed to support companies that meet the policies and conditions to use the overseas capital market for standardized development, and to reserve institutional space for the listing of Chinese concept stocks in the United States in an inclusive manner. China’s capital market reform is constantly moving towards a more transparent, more open, more complete and more inclusive direction. Here, market participants such as enterprises and investors need to take a more objective and positive attitude, and make full use of overseas capital markets on the premise of protecting data security. ”, I believe that the regulatory agencies of China and the United States will meet each other in the same direction. Whether it is listed in the United States or other overseas places, it is expected that the Chinese concept stocks will maintain long-term and continue to play an important role.
(The author is a member of the Management Committee of China International Capital Corporation Limited and the head of investment banking business)
(Article source: Economic Daily)