Yum China dives as US regulators struggle with auditing

China Securities Regulatory Commission (CSRC) building in Beijing
A Chinese national flag flutters in front of the China Securities Regulatory Commission (CSRC) building on Financial Street in Beijing, China July 9, 2021. REUTERS/Tingshu Wang

March 11, 2022

SHANGHAI (Reuters) – Shares in Yum China and four other Chinese companies plunged on Friday after becoming embroiled in an audit dispute between Beijing and Washington, although China’s securities regulator said it was confident they could reach an agreement.

Yum China Holdings, the owner of restaurants KFC, Taco Bell and Pizza Hut in China, said it may have to be delisted from the New York Stock Exchange by 2024 after US authorities said it had not granted access to audit documents.

Hong Kong-listed shares fell as much as 12% on Friday after closing 11% lower in New York.

Washington demands full access to the books of US-listed Chinese companies, but Beijing has banned foreign access to working papers from local accounting firms — a long-simmering accounting dispute that puts hundreds of billions of dollars in US investments at stake.

In December, the US Securities and Exchange Commission said it had identified 273 companies at risk, without naming names. Five of those companies, including Yum China, were named for the first time this week.

Shares of other Chinese companies identified by the SEC, including BeiGene Ltd, ACM Research Inc, Zai Lab Limited and HUTCHMED (China) Limited, also plummeted on the news.

In an apparent attempt to ease investor panic, China’s securities regulator said on Friday it was confident it would reach an agreement with US counterparts to resolve the dispute.

“We always uphold the spirit of openness and cooperation and stand ready to resolve the issue … through regulatory cooperation,” the China Securities Regulatory Commission (CSRC) said in a statement early Friday, calling the latest SEC statement “normal procedure.” “. ”

The CSRC and the Chinese Ministry of Finance have recently been in constant communication and dialogue with the US Public Company Accounting Oversight Board (PCAOB) and “have made positive progress,” it said.

Separately, two sources with direct knowledge of the talks told Reuters on Friday that the talks had gone smoothly.

“The next step for both parties is to delve into more details,” a source said. The other source said consensus was expected “as soon as possible”.


Hong Kong’s Hang Seng Tech Index fell as much as 9% on Friday before reversing some losses to finish down 4.3%.

BeiGene, whose shares fell 4.9% in Hong Kong and 6% in New York, said in a filing it was looking for solutions.

ACM Research said it is exploring solutions and Zai Lab said its inclusion “will not have any significant impact on operations”. HUTCHMED did not immediately respond to requests for comment.

Linus Yip, chief strategist at First Shanghai Group, said the SEC’s move was not entirely unexpected, but investors’ reaction is understandable given the heightened geopolitical tensions.

“The mood is bad now. We have China-US tensions, the Ukraine crisis, prospects for rate hikes and more,” Yip said. “So it’s natural for investors to look to the dark side.”

Bruce Pang, an analyst at China Renaissance, said the main reason the five companies were identified by the SEC is that they are the first companies to have already filed their 2021 annual reports.

“However, this list has brought delisting risk back to the fore as regulators seek to step in with stricter disclosure and compliance requirements.”

The SEC has given these companies until March 29 to provide evidence to challenge their identification.

(Reporting by Roxanne Liu, Samuel Shen, Engen Tham and Brenda Goh in Shanghai Additional reporting by Kane Wu in Hong Kong, Editing by Shri Navaratnam and Mark Potter) Yum China dives as US regulators struggle with auditing


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