What happened
On Thursday, as Chinese tech stocks tumbled on news of a second round of U.S. listed Chinese equities being added to the SEC's soon-to-be-delisted list, I highlighted a glimmer of hope:
Over in China the South China Morning Post reported that the Chinese government had "empowered" its China Securities Regulatory Commission (CSRC) "to find a mechanism to comply with overseas accounting regulations" and that "a new approach is being considered, where China's finance ministry vets the audit data for state secrets and personal information before handing it over" for review by U.S. auditors.
Today, that glimmer got a bit brighter, and Chinese tech stocks are heading higher:
- JD.com (JD 2.31%) is up 4.6% as of 10:30 a.m. ET.
- Bilibili (BILI 11.01%) is up 8.7%.
- And Pinduoduo (PDD -0.66%) is leading the sector higher with a 9.6%. gain.
Image source: Getty Images.
So what
What's driving Chinese tech stocks higher this morning? As Bloomberg reports today, there are new details on China's potential willingness to compromise and allow more transparency into the financials of its China-based U.S.-listed companies.
Specifically, "Chinese authorities are preparing to give U.S. regulators full access to auditing reports of the majority of the 200-plus companies listed in New York as soon as mid-this year," says the news agency, and those authorities are even "drafting a framework that will allow" this.
Now what
Now don't get too excited. China's government still harbors "national security concerns" about letting too much sensitive information leave the country. It's possible that companies that collect "large volumes [of] consumer information, such as Alibaba Group Holding," for example, might still be forbidden from allowing that data to cross China's borders.
As Bloomberg cautions, the Chinese government might simply be resigned to the fact that "state-owned enterprises and private companies that hold sensitive data will be delisted," and willing to accept that consequence as the cost of hiding its most sensitive data away from prying eyes. And of course, it's anybody's guess which data China might consider too "sensitive" to release.
That said, initial indications today look good. CNBC is reporting that the CSRC has instructed "some accounting firms" in China this week to begin preparing to conduct joint inspections with auditors from the U.S. Public Company Accounting Oversight Board (PCAOB).
At the very least, it now appears that China is prepared to make compromises that will permit some -- if not all -- U.S.-listed Chinese companies to continue trading in the U.S. That simple caveat may be enough to cause investors to pause before selling Chinese stocks en masse and to wonder which stocks might make the cut -- and still be safe to buy.
