U.S.-China Agreement on Audit Inspection: A Compromise Not Yet the Solution

The CSRC may want to have a hand in everything

Image by Los Angeles Times

Before we begin, here is a recap of what I’ve said or written so far about the ADRs, i.e. Chinese companies listed in the U.S. I’ve said a lot of crazy things but some of them turned out to be right.

• What You May Have Missed on the Didi Case (07/09/2021)

• The Story Isn’t Over for Chinese ADRs (12/28/2021)

• The Real Risk of Chinese ADRs Part One (04/03/2022)

• The Real Risk of Chinese ADRs Part Two (04/05/2022)

• Eleven More ADRs Added to the De-listing Watch List (05/12/2022)

• Hong Kong Seeks to Add ADRs to Southbound Trading (06/15/2022)

The big news this weekend is that the U.S. and China reached a landmark deal on the audit inspection of the ADRs. The agreement was signed between the PCAOB, Public Company Accounting Oversight Board, and the CSRC, China Securities Regulatory Commission.

This is definitely a milestone in U.S.-China investment relations. It should significantly reduce the de-listing risk of the Chinese ADRs. However, I think this is a compromise, not yet the final solution. The main challenge is this is the first major collaboration between the financial regulators of the two countries. When it comes to implementation, inevitable disputes and a steep learning curve occur for both parties.