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UPDATE 2-Foreign regulators need to rethink China supervision-CSRC
July 11, 2011 / 5:30 AM / 6 years ago

UPDATE 2-Foreign regulators need to rethink China supervision-CSRC

* Most of the scandal-tainted companies registered outside of China-CSRC

* US and Chinese regulators meet this week over auditor inspections

* Bankers look at short-term, don’t understand businesses-CICC exec (Adds more comments from conference)

By Rachel Armstrong

SINGAPORE, July 11 (Reuters) - The string of accounting scandals at overseas-listed Chinese companies should force foreign regulators to rethink how they supervise China-based firms, a senior official from China’s securities regulator said on Monday.

U.S. securities and accounting regulators are meeting their Chinese counterparts in Beijing this week to try and negotiate an agreement on joint U.S.-Chinese inspections of auditing firms in China.

The meetings follow a series of accounting scandals that has triggered a collapse in the share prices of U.S.-listed Chinese stocks, with a number of companies having their shares suspended or delisted.

Liu Qingsong, deputy director of the China Securities Regulatory Commission’s research centre, told a conference on China held in Singapore that while Chinese regulators were considering how to improve regulation following the scandals, overseas regulators also had to look at their own policies.

“I hate these scandals, everybody hates them. The scandals are very damaging to the reputation of all Chinese companies in the U.S.,” said Liu.

“But when we look closely at all these companies we see most of them are not registered in China, most of them are registered outside of China.”

Liu added that the history of Chinese regulators working with their Hong Kong counterparts was a good model of strong co-operation, but U.S. regulators need to look carefully at their own standards if they are to achieve a similar relationship.

“I think overseas regulators should rethink the processes they follow too, then we may have better co-operation in the process of overseas listings,” he said.

Representatives from the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are meeting with officials from China’s ministry of finance and the China Securities Regulatory Commission (CSRC) today.

EFFECTIVENESS QUESTIONED

Simon Gleave, KPMG’s partner in charge of financial services in China, said he doubted how effective U.S. inspections of mainland-based auditors would be.

“I don’t know many American regulators who speak Chinese so how they’re going to look at the books of Chinese companies I have no idea,” he said, speaking on the same panel as Liu.

Gleave added that the biggest challenge posed by these scandals was improving corporate governance of non-state owned Chinese companies.

“Being in the audit profession in China and making sure you get clean books when management’s behaviour is questionable is not easy, because we don’t test every single transaction, we can‘t,” he said.

The PCAOB has been trying to inspect China-based auditors of U.S.-listed companies since 2007. However, the recent run of scandals has upped the pressure on regulators from both jurisdictions to improve co-operation.

PCAOB chairman James Doty told Reuters last week that he expects a deal to be in place by early next year.

Liu Jingsheng, managing director of investment bank China International Capital Corporation’s (CICC) strategic research department, said bankers working on the IPOs of Chinese companies listing overseas were also partly to blame for the scandals.

“The quality of bankers has decreased, they do not really understand the industries,” she told the conference.

“Many of them are very short-term, if they have a transaction they do it, they get money, but they don’t care if the company continues to make money or not.”

Since March, 30 U.S.-listed Chinese firms have had their auditors resign and 20 have been delisted from exchanges according to the PCAOB.

KPMG’s Gleave added that many of the companies listing overseas also had management with a very short-termist approach.

“One of the problems in China itself has been that in newly listed companies CEOs don’t stay very long, they make money and then disappear into America or wherever they want to live,” he said. (Editing by Muralikumar Anantharaman)

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