Exclusive: US regulators scrutinize Alibaba, JD.com, and other Chinese firms’ sourcing and audits

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  • Alibaba, JD.com and Yum China Notified of US Audit Examination – Sources
  • US-listed Chinese companies will begin checking accounts next month
  • Follows the historic US-China audit deal
  • US-listed Alibaba shares closed down about 3% on Tuesday

HONG KONG (Reuters) – US regulators have picked major e-commerce companies Alibaba Group Holding Ltd. (9988.HK) and JD.com (9618.HK) Among other Chinese companies listed in the United States for an audit examination that will begin next month, people familiar with the matter said.

The choice follows a landmark audit agreement between Beijing and Washington on Friday that allows US regulators to inspect accounting firms in mainland China and Hong Kong, potentially ending a long-running dispute that has threatened to expel more than 200 Chinese firms from US exchanges. Read more

Tech duo along with Yum China Holdings Inc (9987.HK) — the owner of Kentucky Fried Chicken, Taco Bell and Pizza Hut restaurants in China — they have been notified that they are among the first batch of Chinese companies whose audits in Hong Kong will be scrutinized by the US watchdog, the Public Accounting Oversight Board (PCAOB), the people told Reuters. They refuse to reveal their identities due to confidentiality restrictions.

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The people added that the relevant accounting firms of Alibaba, JD.com and Yum China – PwC, Deloitte and KPMG – have been notified of the inspection.

Alibaba, JD.com, Yum China, KPMG and the China Securities Regulatory Commission did not respond to requests for comment.

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Spokespeople for PwC and Deloitte said it is company policy not to comment on customer matters.

A PCAOB spokesperson said on Tuesday that the board had not commented on the inspections. The agency cannot be reached for comment outside of US business hours on Wednesday.

US-listed Alibaba shares closed down about 3% on Tuesday after the Reuters report, after rising about 1% in pre-market trading. Its Hong Kong shares trimmed their losses to nearly 1% Wednesday afternoon, after falling more than 3% in the morning.

US regulators have demanded for more than a decade access to audit papers of US-listed Chinese companies, but Chinese authorities have been reluctant to allow US regulators to inspect accounting firms in China, citing national security concerns.

Alibaba, which went public in New York in 2014 in what was at the time the largest listing in history, is the most valuable Chinese company listed in the United States with a market capitalization of $248 billion as of Tuesday.

There is no special treatment

The PCAOB said Friday that it had notified the selected companies, without naming them, and that it expected their officials to land in Hong Kong, where the inspections will be conducted, by mid-September.

The regulator, which oversees audits of US listed companies, said it selects companies based on risk factors, such as size and sector, and that no company can expect special treatment. Read more

Reuters was unable to say how many other Chinese companies and which were among the first batch of US inspections.

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Alibaba was founded in 1999 with e-commerce as its main business. It has expanded into fast-growing sectors such as cloud services and the Internet of Things in recent years and also owns AutoNavi, a large Chinese digital mapping and navigation company.

In July, Alibaba was added to the US Securities and Exchange Commission (SEC) list of Chinese companies that may be delisted if they do not comply with audit requirements. Read more

The list now includes more than 160 Chinese companies including JD.com, Yum China and electric car maker Nio Inc.

Current US rules state that Chinese companies that do not comply with requests for audit working papers will be suspended from trading in the US in early 2024.

Days before it was added to its delisting watch list, Alibaba said it plans to add a preliminary listing in Hong Kong to its New York presence, targeting investors in mainland China. Read more

The tech giant, already on the Hong Kong Stock Exchange with a secondary listing since 2019, said it expects to complete the initial listing by the end of 2022.

Yum China said in mid-August that it had also applied for a preliminary listing in the city, as it looks to circumvent the threat of delisting from New York. Read more

The company expects that the conversion from its current secondary listing status to primary will be completed in October, subject to shareholder approval.

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Covering by Julie Zhou in Hong Kong; Additional reporting by Katanga Johnson in Washington. Editing by Sumit Chatterjee and Christopher Cushing

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