Text size

Alibaba shares fell on Thursday.

Greg Baker/AFP via Getty Images

Assurances from Chinese authorities that they were making progress in addressing issues that could lead to the delisting of continental stocks traded in the United States may have been premature. The Public Enterprise Accounting Oversight Board intervened on Thursday, casting doubt on news that had helped such stocks rebound.

The audit watchdog said in a statement Thursday that speculation about a final deal with Chinese authorities that would give the PCAOB access to the records of China- and Hong Kong-based audit firms is “premature.” It is unclear whether the Chinese government as a whole would agree to allow and facilitate the kind of access required by the watchdog, he said.

The PCAOB said it continues to engage with Chinese authorities, but it also indicated no signs of softening the US stance that requires full access to relevant audit documentation, even for companies in the sectors sensitive. “This is non-negotiable,” the watchdog group said in a statement.

The news was not well received by investors. the

Invesco Golden Dragon China ETF

(PGJ) fell 4% on Thursday, while

Alibaba Group

(BABA) also lost 4%. The declines come after a strong rally last week in response to comments from Chinese officials that they were moving towards a compromise that could avoid the delisting of Chinese companies under the Foreign Company Liability Act.

As barrons reported last week, assurances from Chinese authorities have not been met by similar dovish language from US regulators. In fact, pressure for increased surveillance of Chinese companies continues to grow in the United States.

Congress has been debating a provision in its China competition bill that would set up a process to review outbound investments and the movement of critical capabilities and supply chains overseas. The language around what a critical capability is and what transactions would be included is still unclear, including whether it would apply only to technology transfers, or also to monetary issues, says Owen Tedford, research analyst at Beacon Policy Advisors.

The provision is meeting resistance from lawmakers and may not make it into China’s competition bill, but Tedford sees impetus for a possible executive order to tackle the issue. Such an order could restrict U.S. investments by banks, mutual funds and other financial institutions in Chinese tech companies and startups in sectors including semiconductors, artificial intelligence and facial recognition technology. , as well as export control restrictions that would limit the shipment of technology. themselves, says Tedford.

This combination of circumstances – the position of lawmakers, the possibility of an executive order and the position of the PCAOB – make it clear that the US-China relationship remains strained. And that could limit a rebound in Chinese equities, even if market fundamentals start to improve.

Write to Reshma Kapadia at [email protected]