China Hecks Into Accounting Issues For Firms Listed Abroad

CHINA is looking into accounting issues involving Chinese companies listed in North America, an official at the country’s securities regulator said in the watchdog’s first public remarks since a series of accounting scandals.

Corporate misbehavior, unfamiliarity with the US market and some practices involved in overseas listings had all contributed to recent investor distrust of Chinese companies, said Wang Ou, vice head of research at the China Securities Regulatory Commission.

“First, we have to admit that some of our companies may have flaws. Second, our (companies’) understanding of the US market and the measures to tackle risk there may be inadequate,” Wang said at a conference in Beijing over the weekend.

“We have contacts with the US and its relevant regulatory bodies and we’re studying the issue together.”

Investors have sold off foreign-listed Chinese companies in recent weeks following a flurry of accounting scandals and fraud allegations.

Wang’s comments coincide with a visit to Beijing by officials from the US Securities and Exchange Commission and the Public Company Accounting Oversight Board.

The delegation is meeting Chinese regulators to discuss cross-boarder oversight, hoping to sign an agreement on accounting supervision by the end of this year, Xinhua news agency reported on Friday.

However, experts doubt whether the CSRC can do much as most of the Chinese companies listed overseas have an offshore parent company.

“All the CSRC is likely to do is to try to stop Chinese companies from listing abroad without their permission, but it’s a difficult problem for them because they really don’t have jurisdiction over them, so these companies fall into a regulatory black hole,” said Paul Gillis, visiting professor of accounting at Peking University’s Guanghua School of Management.

Much of the questionable accounting has involved reverse mergers, a type of back-door listing in which a foreign company merges with a US shell company.

To overcome regulatory hurdles, many Chinese companies have also set up legal structures under which control of a mainland-based company can be transferred to an overseas entity via certain contracts.

CSRC’s Wang said this practice would expose Chinese companies to potential legal risks, another source of worry for overseas investors.

– Shanghai Daily