Governance takes centre stage in US/China face-off

As relations between the two super-powers becomes increasingly strained, the Chinese financial regulator has confirmed the country’s commitment to improving corporate governance amid the fallout of the US-listed Luckin Coffee scandal.

Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), said the country would improve monitoring and oversight of misconduct by its companies listed on foreign exchanges and work harder on auditing them.

“China will move unswervingly to deepen reforms and expand opening-up, ramp up the rollout and implementation of financial reform and opening-up measures, and protect the legitimate rights of foreign firms in China,” said Mr Yi, reading an address from Chinese Vice Premier Liu to the Lujiazui Forum in Shanghai, according to Global Times.

The paper reported that the CSRC pledged to continue to strengthen cooperation with international financial regulators and organisations, and to jointly establish a law enforcement alliance that would clamp down lawbreakers.

The commitment comes as the US has begun to draft -- and pass – a series of reforms around the auditing and oversight of foreign companies listed on its exchanges. In part, these reforms were in response to alleged accounting fraud by Chinese coffee chain Luckin.

This all highlights a souring of the relationship between the world’s two largest economies, which had once been, if not close, then cooperative around corporate governance.

In May 2013, the US Public Company Accounting Oversight Board (PCAOB) signed a memorandum of understanding with Chinese securities regulators to allow it to obtain papers from China-based audit firms in certain circumstances.

However, this non-binding agreement may not have been the solution it was intended to be, with China often refusing to cooperate, according to the China Accounting Blog.

Yet, there could still be hope for the two sides agreeing a rapprochement more than seven years on. The blog cites Chinese media group Caixin quoting Mr Yi as making positive noises around cooperation.

According to Caixin, Mr Yi said: “As long as the US side is truly willing to solve the problem, we can definitely find a way for China and the US to cooperate on audit regulation.”

He reportedly went on to say that joint inspections were common practice in international cooperation, which is, according to the blog, “the first time Chinese authorities have sanctioned that approach”. Previously, China had preferred to implement “regulator equivalency” in which a nation’s own overseeing organisations would carry out checks – something that was agreeable to the EU, but not the US.