The US and China are nearing a deal to allow audits of Chinese companies listed in New York

SINGAPORE—The U.S. and China are nearing a deal that would allow U.S. accounting regulators to travel to Hong Kong to inspect the audit records of Chinese companies listed in New York, according to people familiar with the matter, as the two countries are moving towards solving a multi-year stagnation.

Securities regulators in Beijing are making arrangements for U.S.-listed Chinese companies and their accounting firms to transfer audit working papers and other data from mainland China to Hong Kong, the people said.

Regulators from the US Accounting Firm Oversight Board will then travel to the semi-autonomous city to conduct on-site inspections of the Chinese companies’ auditors and their records, they added.

The China Securities Regulatory Commission recently notified some accounting firms and firms about the plan, the people said, adding that U.S. accountant inspectors could arrive in Hong Kong next month. A final deal can only be reached if the US side decides it has full access to the audit working papers, they said.

The CSRC said, in response to a Wall Street Journal inquiry, that it had no relevant information to disclose. The PCAOB declined to comment.

Earlier this month, Erica Williams, chairwoman of the PCAOB, told the Journal in an interview that U.S. auditors and investigators were prepared to travel to inspect the Chinese companies’ audit work documents when there was a deal.

“We’ve got teams ready, packed and ready to go – if we’ve got an agreement, so we can actually test that agreement and make sure what we have in the agreement on paper actually works in practice,” Ms. Williams said, adding that she herself is ready to go if needed.

PetroChina, a major Chinese oil and gas producer, said it plans to delist its shares from the New York Stock Exchange.


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More than 200 US-listed Chinese companies face the prospect of delisting from early 2024 if their auditors cannot be audited by the PCAOB for three consecutive years. About 160 companies — including Alibaba Group Holding Ltd., JD.com and Baidu Inc. — have so far been identified as non-compliant with the Foreign Companies Accountability Act, which took effect last year.

For years, regulators in China have been reluctant to allow such inspections and argued that unrestricted access to the companies’ audit documents and data could threaten the country’s national security. YJ Fischer, an official with the US Securities and Exchange Commission, recently said that such a claim is “questionable at best.”

Since the HFCAA went into effect, authorities in China have expressed a desire to find a way to comply with the law.

US securities regulators, meanwhile, have said they need full access to the companies’ unredacted audit documents before they can judge that China is in compliance. SEC Chairman Gary Gensler said a framework allowing them to inspect and investigate Chinese auditors is just one step in the process and “the proof will be in the pudding.” These inspections can take several months to complete.

Chinese regulators have told some companies in recent weeks that the government will support their U.S. listing as long as the companies comply with domestic data security and privacy regulations, according to people familiar with the matter. theme. Regulators have also signaled they will allow US accounting regulators unrestricted access to the companies’ audit records in Hong Kong, they added.

As the risk of involuntary delisting looms, some U.S.-listed Chinese companies, including Alibaba and Yum China Holdings Inc., plan to convert their secondary listings in Hong Kong to primary listings. That would allow their shares to continue trading in the Asian financial hub if US stock markets rallied.

Five Chinese state-owned companies, including one of China’s biggest oil and gas producers, PetroChina Co., said earlier this month that they plan to delist their U.S. shares from the New York Stock Exchange. They cited low US trading volumes and the administrative burden and cost of maintaining their New York listings as reasons for their decisions.

Write to Keith Zhai at keith.zhai@wsj.com

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