Just two posts back, I wrote about a problem of Chinese publicly-listed companies; namely, that many of them don't exist.
Well, it seems like their party is one step closer to ending.
The American Public Company Accounting Oversight Board (PCAOB) and Securities and Exchange Commission (SEC) is sending over a delegation to establish oversight of Chinese auditing firms. At the same time, Canada's Ontario Securities Commission (OSC) will be "reviewing" emerging market companies listed on Canadian exchanges.
Although China forbids US auditors from exposing, um, I mean, inspecting Chinese companies directly, the US auditors are hoping to create a list of companies willing to be inspected voluntarily with Chinese government consent. Presumably, most of those willing to be inspected would be legitimate.
When I was in India a few years ago, I saw a "steel products manufacturing company" that consisted of one skinny guy with a small pile of coal, a bellows, a hammer, and an anvil. He was seated inside a cubicle made of sheet metal at a New Delhi marketplace, hammering out a kitchen knife. A sign behind him proudly announced that his company was publicly-traded on an Indian stock exchange.
Companies in China already hire white people with no qualifications or job descriptions, so that their offices can look international and important. Predictably, shell companies will hire people off the street to play the roles of office employees during the audit visits; or, they will just try their luck with red envelopes full of cash. Nonetheless, I suspect that the paperwork will not be so easy to fake. Since the Chinese government cannot afford to lose face, many more companies will be de-listed.
Yet another nail in the coffin of the bloated Chinese market.
____
"The superior man understands what is right; the inferior man understands what will sell."
Confucius
____
