Chinese ADRs Spike After SEC Reaches Audit Agreement With Beijing

The U.S. and China, in their first measure of any type of diplomatic progress in months, appear to have reached a preliminary agreement on audit inspections for U.S. listed, China-based companies. 

China-linked U.S. listed stocks are rocketing higher in the pre-market session as a result. The KraneShares CSI China Internet ETF was up almost 5% on the news, as China-based tech stocks like Alibaba, JD and others were bid higher. 

Even Chinese equities caught a bid, with the iShares China Large-Cap ETF rising almost 3% pre-market:

“Beijing and Washington have reached a preliminary agreement to allow American officials to review audit documents of Chinese businesses, according to American officials,” Bloomberg reported early on Friday morning.

SEC Chair Gary Gensler said in a statement: “This agreement marks the first time we have received such detailed and specific commitments from China that they would allow PCAOB inspections and investigations meeting U.S. standards.” It “will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China. If it 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.”

The news follows reports on Thursday that the two countries were close to getting a deal done. The agreement was officially announced by the Securities and Exchange Commission and Public Company Accounting Oversight Board on Friday. 

The news was also confirmed by the China Securities Regulatory Commission, who wrote put an official statement on their website Friday morning. 

#BREAKING

The China Securities Regulatory Commission and the Ministry of Finance signed an audit supervision cooperation agreement with the US PCAOB on Aug 26, and relevant cooperation will be launched soon, according to a statement on the CSRC’s website. pic.twitter.com/UpPfQWRqoG

— YUAN TALKS (@YuanTalks) August 26, 2022