Wall Street told ‘China’s Google’ that it may have to delist amid ongoing US-China discussions over audit dispute

• The SEC added Baidu to a provisional list of firms that failed US audit requirements.
• If these firms continue to flout these requirements, they may be asked to delist in the US.
• Beijing has rejected US demands to look into the audit books of its US-listed firms.

The Securities and Exchange Commission (SEC) warned Chinese search giant Baidu on Wednesday that it could be removed from American stock exchanges if it fails to comply with auditing requirements.

The SEC did so by adding Baidu to a provisional watchlist that names foreign companies that did not give US authorities full access to their audit books.

Google is among several western tech sites blocked by China’s “Great Firewall.” Baidu’s dominance in online search in China has earned it the moniker “China’s Google.” It’s the largest Chinese tech company by market value on the SEC’s provisional list, which also includes China’s version of Twitter, Weibo, and online video site iQiyi. These Chinese tech firms now have 15 business days to dispute the SEC’s decision.

Companies that have been conclusively identified by the SEC will have to comply with the US Public Accounting Oversight Board’s (PCAOB) audits for three years in a row. If they fail to comply, they may be kicked off US exchanges entirely.

The SEC’s decision on Wednesday intensifies an ongoing dispute between American and Chinese regulators over granting US officials full access to US-listed Chinese firms’ auditing data. 

The watchlist was compiled based on the 2020 Holding Foreign Companies Accountable Act, which requires listed firms to prove that they’re not owned or controlled by foreign governments. Even though the legislation applies to companies from any country, its sponsors have made it clear that they’re targeting Chinese companies. Last year, the NYSE delisted China Unicom Hong Kong, China Mobile, and China Telecom for noncompliance. 

Earlier this month, Securities and Exchange Commission Chair Gary Gensler said that the SEC was scrutinizing an additional 248 Chinese companies with a market capitalization of around $2.1 trillion. 

If China fails to provide access, said Gensler, those companies would be blocked from trading in the US “potentially as early as 2024.”

Even though Beijing has rejected these demands citing national security concerns, it has, in recent weeks, been signaling that it’s willing to find a compromise.

Chinese authorities have asked several large tech companies to prepare for more audit disclosures to US authorities to remain listed in America, Reuters reported. However, the PCAOB told Reuters they were still unsure if full access would be granted.