China Probes Slump in Overseas Listings

Monday, 27 Jun 2011 09:56 AM

 

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China is paying close attention to the slump in shares of overseas-listed Chinese companies in the wake of a string of accounting problems and is studying ways to address the issue, an official from the country's securities regulator said.

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

"First, we have to admit that some of our companies may have flaws. Second, our (companies') understanding of the U.S. market and the measures to tackle risk there may be inadequate," Wang told a conference over the weekend.

Wang's comments, the first public remarks from the CSRC since a series of accounting scandals involving Chinese companies listed in North America, coincide with a visit to Beijing by officials from the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board.

The delegation arrived in Beijing to meet Chinese regulators to discuss cross-border oversight, hoping to sign an agreement on accounting supervision by the end of this year, the official
Xinhua News Agency reported on Friday.

Audits of Chinese companies listing in the United States became a hot issue after a spike in accounting scandals and shareholder lawsuits alleging fraud.

Much of the questionable accounting involved reverse mergers, a type of backdoor listing in which a foreign company merges with a U.S. 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 the practice would expose Chinese companies to potential legal risks, another source of worry for overseas investors.

© 2014 Thomson/Reuters. All rights reserved.

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