Chinese, US regulators 'need better communication'

Chinese auditors have been wrongly blamed for scandals surrounding recent listings of Chinese companies on the New York Stock Exchange, according to a leading accountant.

David Wu, managing partner of PricewaterhouseCoopers in Beijing, who has been involved in listings of some of China's largest State-owned enterprises, insists the problem often lies in the United States itself.

"Many of the recent problems have involved reverse takeovers, where the assets of a Chinese company have been reversed into a shell US company," he says.

He says there have been no such irregularities when Chinese companies were vetted by domestic regulators before seeking an overseas listing.

"If you want to go to the United States to get listed, you need to get an exit visa from a Chinese regulator and then you get an entry visa into the capital markets in the United States. Those who go down the reverse takeover route don't get the exit visa from the Chinese authorities," he says.

One of the latest cases involved the Chinese company Puda Coal, which sold the company's assets before raising more than $100 million (76 million eurs) on the NYSE Amex exchange.

It was the subject of a reverse takeover and fraud charges have been filed by the US Securities and Exchange Commission (SEC).

Another high profile reverse takeover case was that of Sino Forest, a Chinese forestry company, which was accused of financial irregularities and saw its share price plummet.

James Lee, regional director of the Institute of Chartered Accountants in England and Wales (ICAEW) in China, says cross-border listings are often complex and there needs to be more co-operation between China and overseas regulators.

"In order to solve disputes of cross-border listing issues, more cooperation and communication is needed between regulators of different countries," he says.

"They need to talk with each other, as well as share information."

Such cross-border co-operation seems to have broken down in the case of Longtop, the Chinese financial software company involving an audit carried out by Deloitte in China.

The company's shares were de-listed in August last year and the auditing papers subpoenaed by the SEC.

Deloitte, which has resigned as auditor, said it could not release them because of China's secrecy laws.

"We have passed on the SEC's requests to the regulators in China, as we are required to, but so far the Chinese regulators have not given us permission to provide papers to the SEC," Wilfred Lee, a spokesman for Deloitte, based in Hong Kong, told Reuters in September.

A spokeswoman for Deloitte in Shanghai refused to comment further on the case.

Zhang Lianqi, partner at Zhongrui Yuehua, believes the US regulators have been heavy-handed in their actions and should have worked with the Chinese regulators in dealing with this issue.

"There should have been greater dialogue between regulators of China and the US and an acknowledgement that China has the right to supervise audit companies in China as does the US in its own land."

Contact the writers at andrewmoody@chinadaily.com.cn and liaoxue@chinadaily.com.cn