What happened
Investors in Chinese tech stocks were regaining some optimism this morning after the Chinese government proposed making changes to confidentiality rules that would allow companies based in China to more fully disclose their financial information. The move is aimed at reducing the potential for Chinese stocks to be delisted in the U.S. -- which is good news for investors.
JD.com (JD -0.21%) was up 8% on the news, Bilibili (BILI -4.24%) popped 17.6%, and Tuya Inc. (TUYA -1.21%) rose 12.4% as of 11:02 a.m. ET.
So what
The U.S. Securities and Exchange Commission (SEC) said recently that nearly a dozen Chinese companies could potentially be delisted from U.S. stock exchanges for not adhering to audit requirements for publicly traded companies. While not all Chinese stocks were named for potential delisting, the threat has been enough to send Chinese stocks on a whirlwind ride lately.
Some stocks would still be available to U.S. investors on foreign exchanges, but being removed from U.S. exchanges is something most companies would love to avoid.
Image source: Getty Images.
A statement made by China's Securities Regulatory Commission (CSRC) over the weekend indicated that the Chinese government was open to smoothing things over with the SEC. It offered an opportunity for U.S. auditors to have on-site audits in China, where official company documents are kept.
According to Reuters, the CSRC said it will allow "cross-border regulatory cooperation, including joint inspections, which will help safeguard interest of global investors." The Chinese government has been concerned that U.S. regulators auditing Chinese companies could potentially lead to the disclosure of state secrets.
While nothing is set in stone between the two countries, this news is a step in the right direction, and JD.com, Bilibili, and Tuya stocks are jumping on the good news today.
Without some sort of agreement between China and U.S. securities regulators, there's a potential for 270 Chinese companies to be delisted from U.S. exchanges over the next few years, Reuters noted.
Now what
While it appears that the Chinese government is open to allowing closer audits of Chinese companies, investors may want to temper some of their excitement. The U.S. and China have held talks about coming to some sort of agreement, but as of right now nothing has been finalized. U.S. regulators haven't confirmed that anything is set between the two countries, and Chinese officials are still focused on making sure that their companies aren't giving up any state secrets.
All of this means there could be volatility for JD.com, Bilibili, and Tuya. These companies have already experienced some erratic share-price movements over the past six months -- with JD.com's stock down 8%, Bilibili falling 48%, and Tuya plunging 59%.
