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China’s Wall Street IPO audit climbdown is a signal of financial fragility

China’s decision to let US regulators audit its New York-listed corporates is a shock. It’s a U-turn, a climbdown and a sign, more than anything, of China’s enduring financial frailty.

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To understand what China is today and how it makes decisions, you must know its recent past.

The ruling Party chafes at how the modern world is constructed. It seethes at how the Qing dynasty was fragmented and disbanded, after years of occupation. And of how after the Second World War, the scarred sovereign was, to invert Dean Acheson’s words, ‘missing’ at the creation, playing little role in the formations of institutions such as the UN and IMF.

Simply put, no one in the People’s Republic, from the noble street-sweeper to Beijing’s elite political caste, likes to be told what to do by an outside force – ever.

Which makes its decision on August 26 to agree to let US regulators audit Chinese companies listed in New York so curious.

This story begins in 2013, when Beijing let the Public Company Accounting Oversight Board (PCAOB) – a non-profit that oversees all US-listed corporates – inspect the audit work of four mainland firms, all then under investigation.

Two years later, it did an about-face.

Beijing bridled at having to open the books on big tech firms such as Alibaba and Baidu, with their troves of personal data, to its geopolitical rival.

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