China on Saturday called for frank dialogue and closer cooperation in reaction to the news that Trump administration officials had urged the US president to delist Chinese companies that trade on US exchanges and fail to meet its auditing requirements by January 2022.

US Securities and Exchange Commission and Treasury officials revealed the development on Thursday, which came after President Donald Trump tasked a group of key advisers, including Treasury Secretary Steve Mnuchin and SEC Chairman Jay Clayton, with drafting a report with recommendations to protect US investors from Chinese companies whose audit documents have long been kept from US regulators.

The development also came amid pressure from Congress to crack down on Chinese companies that avail themselves of US capital markets but do not comply with US rules faced by American rivals.

"We are simply leveling the playing field, holding Chinese firms listed in the US to the same standards as everyone else," a Treasury official told reporters in a briefing call.

China's top securities regulator on Saturday reacted to the US securities regulators' revelation from Thursday cautiously.

"We think that solving problems of mutual concern through dialogue is the only way toward win-win situation," the China Securities Regulatory Commission (CSRC) said in a statement in response to the US recommendations.

The Chinese watchdog also said it has been proposing joint accounting inspections with US regulators with a show of "total sincerity towards cooperation".

CSRC argued in the statement that China has never forbidden or prevented accounting firms from providing overseas regulators with auditing working papers, though such information exchange should be made through regulators' cooperative channels according to Chinese law.

The US Senate unanimously passed legislation in May that could prevent some Chinese companies from listing their shares on US exchanges unless they follow standards for US audits and regulations.

"IMPORTANT FIRST STEP"

Democratic Senator Chris Van Hollen, who sponsored the bill described the recommendations as "an important first step," but said that "without the added teeth of our bill, this report alone does not implement the requirements necessary to protect everyday American investors.”

The administration's recommendations, if implemented via an SEC rulemaking process, would give Chinese companies already listed in the United States until January 1, 2022, to ensure the US auditing watchdog, known as the PCAOB, has access to their audit documents.

They can also provide a "co-audit," for example, performed by a US parent company of the China-based affiliate tasked with auditing the Chinese firm. However, companies seeking to list in the United States for the first time will need to comply immediately, the officials said.

A State Department official told Reuters the administration plans soon to scrap a 2013 agreement between US and Chinese auditing authorities to set up a process for the PCAOB to seek documents in enforcement cases against Chinese auditors.

The PCAOB has long complained of China’s failure to grant requests, giving it scant insight on audits of Chinese firms that trade on US exchanges.

The report also recommends requiring greater disclosure by issuers and registered funds of the risk of investing in China, as well as mandating more due diligence by funds that track indexes and issuing guidance to investment advisers about fiduciary obligations surrounding investments in China.

The moves come amid rising tensions between Washington and Beijing over China's handling of the coronavirus and its moves to curb freedoms in Hong Kong, among other issues.