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6 White Paper on the Business Environment in China
Nevertheless, some inconsistencies remain, and in an envi- and Young, issued a statement […] saying it wanted to
ronment in which mergers and acquisitions are becoming more comply with the rules and hoped the dispute is resolved
strategically lucrative, foreign investors are generally advised soon.18
that Chinese financial statements (especially for private compa-
nies) “usually do not provide as much information as [investors] The Wall Street Journal’s China Real Time blog offered fur-
might be used to receiving” and so it is therefore “important ther context:
that buyers perform their own financial and tax due diligence
review before acquiring a Chinese target.”15 Hours after its high-profile attack on the Chinese arms
of five major accounting firms Monday, the U.S. Securi-
Illustrating the need for due diligence, there have been sev- ties and Exchange Commission laid into Chinese regu-
eral recent cases of Mainland IPOs on foreign exchanges being lators for their alleged lack of cooperation.
delisted and in some cases investigated by exchange regulators
for fraudulent accounting, in addition to seeing auditor resig- In court papers filed late Monday, the SEC said that
nations.16 since 2009 it had sent its Chinese counterpart, the
China Securities Regulatory Commission, 21 separate
By 2012, those investigations had led to “50 China-based requests for assistance in connection with 16 different
companies [being] delisted from U.S. exchanges,” with “The investigations and hadn’t received any of the requested
SEC [filing] fraud allegations against 40 individuals or compa- audit papers or any meaningful assistance. Additionally,
nies.”17 the agency said that long-running negotiations with the
CSRC to establish a framework for information sharing
Moreover, in December 2012 the U.S. Securities and Ex- had gone nowhere.19
change Commission filed a lawsuit against five China-incor-
porated accounting firms, which lawsuit U.S.-based National Given the circumstances, it is likely that the biggest casual-
Public Radio summarized: ties in this apparent proxy-war between U.S. and Chinese reg-
ulators will the accounting firms themselves and Chinese firms
JIM ZARROLI, BYLINE: The suit, which was filed by looking to “go global” and list on U.S. exchanges.
the Securities and Exchange Commission, says U.S. of-
ficials want to investigate nine unnamed Chinese com- As of January 2014, this dispute is ongoing. On the 22nd
panies for unspecified reasons. Officials say that because of that month, a “Securities and Exchange Commission
these companies trade on U.S. stock exchanges, they administrative law judge to suspend the Big Four’s China-based
have to turn over their audit documents to American affiliates from auditing U.S.-traded companies for six months.”
regulators. This decision, writes The Wall Street Journal, moves China
and the U.S. closer to a confrontation over the underlying
But China insists that doing so would violate its own issue of “how much oversight U.S. regulators should have over
rules about corporate secrecy and has steadfastly re- companies inside China [which are listed on U.S. exchanges].”20
fused to do so. The dispute has dragged on for several
years with no resolution, says James Feltman, senior Advertising is another relatively ‘young’ industry in China,
managing director of Mesirow Financial Services. having “returned to the People’s Republic of China in 1979.”21
JAMES FELTMAN: It doesn’t appear as though this The Advertising Law of 1995 officially “legitimated” the
is going to get resolved anytime soon. And ultimately, agency system that is the international norm,19 and beginning
if Chinese listed companies in the U.S. can’t meet the January 1, 2006, wholly foreign-funded advertising companies
requirements, then they’re not going to be able to con- were permitted access to the market in line with China’s WTO
tinue to be listed on U.S. exchanges. entry commitments made in 2001.22
ZARROLI: But the U.S. isn’t ready to lower the boom The interplay between state-owned media, a quickly-chang-
yet and Feltman called yesterday’s suit a measured re- ing media regulatory environment and overlap in regulatory
sponse by the SEC—an attempt to ratchet up the pres- jurisdiction is often cited as a major source of interestingness, as
sure on China. illustrated by changes to tax law in 2000 by the National Bureau
of Taxation capping corporate advertising expenditure to at 2
Caught in the middle are the auditing firms, which are percent of gross annual revenue, leading to protests from the
all affiliates of major U.S. accounting firms, like KPMG State Administration of Industry and Commerce, which is offi-
and Deloitte. One of the firms, which is tied to Ernst cially tasked with oversight of the advertising industry.21
Despite certain hiccoughs, the advertising sector is without
a doubt promising. In 2006 statistics indicated that the overall
228
Nevertheless, some inconsistencies remain, and in an envi- and Young, issued a statement […] saying it wanted to
ronment in which mergers and acquisitions are becoming more comply with the rules and hoped the dispute is resolved
strategically lucrative, foreign investors are generally advised soon.18
that Chinese financial statements (especially for private compa-
nies) “usually do not provide as much information as [investors] The Wall Street Journal’s China Real Time blog offered fur-
might be used to receiving” and so it is therefore “important ther context:
that buyers perform their own financial and tax due diligence
review before acquiring a Chinese target.”15 Hours after its high-profile attack on the Chinese arms
of five major accounting firms Monday, the U.S. Securi-
Illustrating the need for due diligence, there have been sev- ties and Exchange Commission laid into Chinese regu-
eral recent cases of Mainland IPOs on foreign exchanges being lators for their alleged lack of cooperation.
delisted and in some cases investigated by exchange regulators
for fraudulent accounting, in addition to seeing auditor resig- In court papers filed late Monday, the SEC said that
nations.16 since 2009 it had sent its Chinese counterpart, the
China Securities Regulatory Commission, 21 separate
By 2012, those investigations had led to “50 China-based requests for assistance in connection with 16 different
companies [being] delisted from U.S. exchanges,” with “The investigations and hadn’t received any of the requested
SEC [filing] fraud allegations against 40 individuals or compa- audit papers or any meaningful assistance. Additionally,
nies.”17 the agency said that long-running negotiations with the
CSRC to establish a framework for information sharing
Moreover, in December 2012 the U.S. Securities and Ex- had gone nowhere.19
change Commission filed a lawsuit against five China-incor-
porated accounting firms, which lawsuit U.S.-based National Given the circumstances, it is likely that the biggest casual-
Public Radio summarized: ties in this apparent proxy-war between U.S. and Chinese reg-
ulators will the accounting firms themselves and Chinese firms
JIM ZARROLI, BYLINE: The suit, which was filed by looking to “go global” and list on U.S. exchanges.
the Securities and Exchange Commission, says U.S. of-
ficials want to investigate nine unnamed Chinese com- As of January 2014, this dispute is ongoing. On the 22nd
panies for unspecified reasons. Officials say that because of that month, a “Securities and Exchange Commission
these companies trade on U.S. stock exchanges, they administrative law judge to suspend the Big Four’s China-based
have to turn over their audit documents to American affiliates from auditing U.S.-traded companies for six months.”
regulators. This decision, writes The Wall Street Journal, moves China
and the U.S. closer to a confrontation over the underlying
But China insists that doing so would violate its own issue of “how much oversight U.S. regulators should have over
rules about corporate secrecy and has steadfastly re- companies inside China [which are listed on U.S. exchanges].”20
fused to do so. The dispute has dragged on for several
years with no resolution, says James Feltman, senior Advertising is another relatively ‘young’ industry in China,
managing director of Mesirow Financial Services. having “returned to the People’s Republic of China in 1979.”21
JAMES FELTMAN: It doesn’t appear as though this The Advertising Law of 1995 officially “legitimated” the
is going to get resolved anytime soon. And ultimately, agency system that is the international norm,19 and beginning
if Chinese listed companies in the U.S. can’t meet the January 1, 2006, wholly foreign-funded advertising companies
requirements, then they’re not going to be able to con- were permitted access to the market in line with China’s WTO
tinue to be listed on U.S. exchanges. entry commitments made in 2001.22
ZARROLI: But the U.S. isn’t ready to lower the boom The interplay between state-owned media, a quickly-chang-
yet and Feltman called yesterday’s suit a measured re- ing media regulatory environment and overlap in regulatory
sponse by the SEC—an attempt to ratchet up the pres- jurisdiction is often cited as a major source of interestingness, as
sure on China. illustrated by changes to tax law in 2000 by the National Bureau
of Taxation capping corporate advertising expenditure to at 2
Caught in the middle are the auditing firms, which are percent of gross annual revenue, leading to protests from the
all affiliates of major U.S. accounting firms, like KPMG State Administration of Industry and Commerce, which is offi-
and Deloitte. One of the firms, which is tied to Ernst cially tasked with oversight of the advertising industry.21
Despite certain hiccoughs, the advertising sector is without
a doubt promising. In 2006 statistics indicated that the overall
228
