First, thanks to citi for finding this huge piece of news. I outline below my initial reactions, which are all negative, so I hope are all wrong. All are invited (nay, begged!) to show many, many errors in the following analysis. Click here to see my hometown newspaper turn traitor: http://www.chicagotribune.com/business/sns-rt-us-china-accountingtre79i164-20111019,0,49420.story
IMHO, this is terrible news for short term share prices. It implies the Chinese motivation is to make it harder (read: less transparent) for US auditors and investors to get financial information.
Since the subtext of this whole thing is the D&T/Longtop Financial dispute, here's the quick facts: in May, D&T resigned as Longtop's auditors, claiming Longtop was cooking its books; Longtop maintains their numbers are sound. The SEC's trying to find out who's lying, so it's asked for the financial records from D&T. D&T claims China won't allow them to forward that data to the SEC. The SEC has asked a US court to order D&T to turn over the documents. http://www.sec.gov/news/press/2011/2011-180.htm
In this article, China appears to be reiterating that it won't allow those documents out of the country for Longtop and, by extention, for any other company, even those not currently alleged to be fraudulent (like Bidu). If that's truly China's intent, 1. How do we verify future revenue and profit numbers for any Chinese company (except just to trust the companies themselves, some of which have already been shown to be cooking their books)? And 2. Wouldn't China be establishing a perverse incentive for Chinese companies that have been accurately reporting their numbers to 'stretch' those numbers in future reporting, since the SEC would no longer command the authority necessary to (get the proper docs) to catch them?
Here's the rub: we all count on the SEC to be the referee, making sure the companies we buy really have made the revenue/profits/etc. that they claim. This article makes it sound like China's saying "maybe Longtop's real, maybe it's a scam, but we're not going to let the SEC get the documents it needs to find out." And the Chinese demand to the Big 4 to name any other Chinese companies they've sent data to the SEC for makes it sound like any accounting firm that did this might be in trouble with the Chinese govt. That seems to imply that China wants to apply the Longtop prohibition on financial documentation to every Chinese company. In other words, China seems to be creating a situation where we, the investing community, lose our guarantee (the SEC as financial cop) that Chinese numbers are true. If investors can't verify that the documents they're reading are actually true, they're not going to invest further and they're going to sell what they own.
I hope to heck I'm overreacting, but this news seems like it's going to massacre Bidu's price tomorrow. Agree? (Hopefully) disagree? If it's bad, how bad on the share price, do you figure?
It is all manipulations by the Big banks to buy shares cheap ahead of earnings.Whay are you people so stupid you did not learn these tactics yet it happened all the time. Wall Street is the most corrupted people on earth. Money makes people lose their conscience, religion and human nature and turn into animals
But today's news - that China is demanding that the Big 4 accounting firms name any companies whose financial information they've provided to 'overseas regulators' (read: SEC) - wasn't even included in the article you posted's gloomy outlook.
Today's news will almost certainly make those authors even gloomier, since it seems to underscore China's commitment to prevent the transmission of financial data to the SEC in times of conflict between a Chinese company and its auditors (the Big 4 accounting firms, for the stocks we trade). If China prevents that information from flowing to the SEC, then in the current arrangements that US listed Chinese companies have, there is NO AUTHORITY LEFT ON EARTH with the power to verify a Chinese company's stated revenue/profits/etc. (except for the companies themselves, some of which have already proved their accounting 'irregularities' were designed to scam investors - so basically no one).
If we can't trust the numbers, why would we buy the stock?
Yep. It explained why all chinese stocks were down so much more than usual today- especially BIdu with earnings just around the corner. I knew something was brewing....
Unfortunately legit companies like BIdu, Sohu and Sina are caught in the middle of a trade war between these two countries. Going to be ugly....In a way I can see the Chinese point of view - the big 4 are American firms. Now they are accused of fraud?? If you dont trust them who can you trust? Now you want the chinese companies like BIDU to open their books to the SEC? It is like asking Google or Apple to open their books to the CCP. I dont think so....
but google and apple's books are opened to the exchanges they trade on (nasdaq) and its 'enforcement division,' the SEC. but y, if aapl or goog had decided to trade on the beijing exchange instead, then i think investors would demand that they be auditable by china's sec (the csrc), at the very least.
normally, in cases of foreign corp's trading on US exchanges, it's a matter of course that part of their listing agreement to trade as American Depositary Receipts allows the SEC the right to audit the company as if it were a US corp.
basically, as investors we want SOMEBODY to have the power to verify that the numbers a company reports are true. until the longtop thing i think everybody assumed the SEC had that power over chinese firms. to the extent it turns out not to have that power, it's def a bad thing for share prices here.
actually, i've been long bidu in various amnts for over 2.5 yrs, unbroken.
but if you want to mock me, there's plenty of ammo: i purchased my most recent tranche of bidu immediately following the july 25 earnings announcement at prices between $151 and $163. if you really want a laugh at my expense, compare my $163 purchase with the all time high that anybody's ever paid for bidu. a genius i most certainly am not.
lol, tx for being probably the only person on earth to make it through all my VIE stuff. i actually sanitized out any school or professional info (and changed the joke in the last paragraph) before i sent that one public: http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_B/threadview?bn=22855&tid=441424&mid=441424