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White House set to scrap deal underpinning US-China firms

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President Donald Trump. Photo: AP

President Donald Trump. Photo: AP

AP

President Donald Trump. Photo: AP

The Trump administration plans to scrap a 2013 agreement between US and Chinese auditing authorities, a senior State Department official said, a move that could foreshadow a crackdown on US-listed Chinese firms under fire for sidestepping US disclosure rules.

The deal, which set up a process for a US auditing watchdog to seek documents in enforcement cases against Chinese auditors, was initially welcomed as a breakthrough in US efforts to gain access to closely guarded Chinese financial information and bestowed a mark of legitimacy on Chinese regulators.

But the watchdog, known as the Public Company Accounting Oversight Board (PCAOB), has long complained of China's failure to grant requests, meaning scant insight into audits of Chinese firms that trade on US exchanges.

The lack of transparency has prompted administration officials to lay the groundwork to exit the deal soon, according to Keith Krach, undersecretary for economic growth, energy and the environment, in a sign the PCAOB will give up on efforts to secure information from the Chinese.

"The action is imminent," Mr Krach said on Monday in an emailed response to questions. "This is a National Security issue because we cannot continue to afford to put American shareholders at risk, to put American companies at a disadvantage and allow our pre-eminence of being the gold standard for financial markets to erode."

The White House declined to comment, while the PCAOB did not immediately respond to requests for comment.

China's Foreign Ministry, in a reply to Reuters, said abolishing the memorandum of understanding would not help improve the supervision of listed companies in the United States and would damage the interests of investors.

It was not clear when or how the US administration would revoke the agreement, which requires 30-day notice by either party, and its termination would not directly threaten the listed status of Chinese companies that trade on US exchanges. Among some of the bigger Chinese companies trading in the US are Alibaba Group Holding Ltd and Baidu Inc.

In May, the administration successfully pressured an independent board that oversees a $40bn international pension fund for federal employees to halt plans to track an index that includes Chinese companies, citing "risks to investors resulting from inadequate investor disclosures and protections under Chinese law".

In June, US President Donald Trump assigned a group of officials to recommend measures within 60 days to protect US investors "from the failure of the Chinese government to allow PCAOB-registered audit firms to comply with US securities laws".

Last week, PCAOB chairman William Duhnke said he saw "no prospects" of being able to properly do its job overseeing disclosures and preventing accounting fraud in China.

Pressure is also mounting from Congress, with the Republican-led Senate passing a bill that, if approved by the Democrat-led House of Representatives and signed into law, would bar securities of any foreign company from being listed on any US securities exchange if it has failed to comply with the PCAOB's audits for three years in a row.

Irish Independent