US, China reach deal in dispute over Chinese company audits

WASHINGTON (AP) — The U.S. and China have reached a tentative agreement to allow U.S. regulators to inspect the audits of Chinese companies whose stocks are traded on U.S. exchanges. In a long-festering dispute, U.S. regulators have threatened to boot a number of Chinese companies off the New York Stock Exchange and the Nasdaq if China didn’t permit inspections.

The deal announced Friday by market regulators in the U.S. and China is preliminary, and Securities and Exchange Commission Chairman Gary Gensler said “The proof will be in the pudding.”

“While important, this framework is merely a step in the process,” Gensler said in a prepared statement. “This agreement will be meaningful only if (U.S. regulators) actually can inspect and investigate completely audit firms in China. If (they) cannot, roughly 200 China-based issuers will face prohibitions on trading of their securities in the U.S. if they continue to use those audit firms.”

An agreement would mean that U.S. investors will maintain access to shares of important Chinese companies while at the same time being protected by the integrity of company audits.

“This is unequivocally positive news and a major step toward averting mass delisting of Chinese companies in the U.S.," analyst Tobin Marcus at Evercore ISI said in a note to clients. However, he said, “a deal is only the first step toward avoiding delisting. What ultimately needs to happen is that (U.S.) Inspectors need to show up and complete inspections. ... We expect that these inspections will take months."

Even though preliminary, it is a rare instance of accord at a time when relations between the U.S. and China are fraught as the two sides spar over trade, the war in Ukraine and human rights. The tension was ratcheted higher by a recent visit by U.S....