U.S. officials will review the audits of Alibaba, JD.com, and other Chinese companies, sources say.
Hong Kong
U.S. officials have designated Alibaba Group Holding Ltd. and JD (NASDAQ:JD).com Inc., along with other U.S.-listed Chinese businesses, for audit review beginning next month, according to individuals familiar with the situation.
The pick follows a historic audit agreement between Beijing and Washington on Friday, which permits U.S. authorities to screen accounting firms in mainland China and Hong Kong, potentially ending a protracted battle that threatened to remove more than 200 Chinese businesses from U.S. stock markets.
Related: U.S. officials will scrutinise Alibaba and other Chinese audits. Sources
The tech companies and Yum China Holdings, which owns KFC, Taco Bell, and Pizza Hut restaurants in China, have been told that they are among the first Chinese companies whose audits will be looked at in Hong Kong by the Public Company Accounting Oversight Board (PCAOB), which is the U.S. watchdog for audits.
In addition, the relevant accounting firms of Alibaba, JD.com, and Yum China—PwC, Deloitte, and KPMG—have been alerted of the examination, according to the sources.
When asked for their thoughts, the China Securities Regulatory Commission, Alibaba, JD.com, and Yum China did not respond.
According to PwC and Deloitte spokespersons, it is against corporate policy to comment on client concerns. KPMG refused to comment on the issue.
On Tuesday, a representative for the PCAOB stated that the board does not comment on inspections. It was unable to reach the watchdog for comment on Wednesday, after U.S. business hours.
After Reuters’s story, Alibaba’s U.S.-listed shares ended Tuesday’s trading session roughly 3% down, having gained approximately 1% in pre-market trading. After falling more than 3% in the morning, its Hong Kong shares trimmed losses to about 1% by Wednesday afternoon.
Since more than a decade ago, U.S. officials have wanted to look at audit documents of Chinese companies listed in the U.S. However, Chinese authorities have been reluctant to let U.S. regulators look at Chinese accounting firms, citing national security concerns.
Alibaba, which went public in New York in 2014 in the biggest IPO in history, is the most valuable Chinese company listed in the United States as of Tuesday, with a market value of $248 billion.
No distinct treatment
The Public Company Accounting Oversight Board (PCAOB) announced on Friday that it had contacted the selected firms, without identifying them, and that it expected its staff to arrive in Hong Kong, where the inspections would be conducted, by mid-September.
The regulator, who is in charge of auditing U.S.-listed companies, said that it chooses companies based on risk factors like size and industry, and that no company can expect to be treated differently.
Related: U.S. officials accuse Hyundai suppliers of child labour crimes.
Reuters couldn’t find out quickly how many and which Chinese companies were inspected by the U.S. in the first round.
Alibaba was launched in 1999 with an emphasis on e-commerce. In recent years, it has moved into rapidly rising industries such as cloud services and the Internet of Things, and it now owns AutoNavi, a big Chinese digital mapping and navigation company.
Alibaba was added to the list of Chinese companies that the U.S. Securities and Exchange Commission (SEC) could delist in July if they don’t meet audit requirements.
There are now more than 160 Chinese businesses on the list, including JD.com, Yum China, and Nio Inc., a manufacturer of electric vehicles.
Current U.S. regulations indicate that beginning in early 2024, Chinese enterprises that do not comply with audit working paper requirements will be prohibited from dealing in the United States.
Alibaba stated, days before being listed on the SEC’s delisting radar, that it wanted to add a primary listing in Hong Kong to its New York presence, targeting mainland Chinese investors.
The IT giant, which has had a secondary listing on the Hong Kong exchange since 2019, expects the primary listing to be finished by the end of 2022.
Related: U.S. and Chinese officials are negotiating an audit agreement, according to sources.
Yum China said in mid-August that it has also sought a main listing in the city in an attempt to avoid delisting from New York.
The company thinks that, if shareholders agree, its secondary listing will become a primary listing in October.
