US accounting inspectors could arrive in Hong Kong as soon as next month to make sure it has full access to audit papers, paving the way for a final agreement.

China and the US are making progress in talks over the inspection of audit papers of Chinese companies listed in New York, a new report said, echoing some of the rumors that prompted a strong rally in Hong Kong stocks Thursday.

The US and China are nearing an agreement that would allow US accounting regulators to travel to Hong Kong to examine the audit records of Chinese companies listed in New York, the Wall Street Journal said Thursday, citing people familiar with the matter.

Securities regulators in Beijing are making arrangements for US-listed Chinese companies and their accounting firms to transfer their audit work papers and other data from the Chinese mainland to Hong Kong, according to the report.

Regulators from the US Public Company Accounting Oversight Board (PCAOB) will then travel to Hong Kong to conduct on-site inspections of the Chinese companies' auditors and their records, the report said.

The China Securities Regulatory Commission recently informed a number of accounting firms and companies of the plan, and US accounting inspectors could arrive in Hong Kong as soon as next month, according to the report.

A final agreement will be reached only when the US side determines it has full access to audit working papers, the report said.

Over the past two years, the risk of delisting has become one of the key factors that has led to a prolonged depression in the valuation of Chinese companies listed in New York because of disagreements between the US and China over the audit papers.

Earlier this year, the US Securities and Exchange Commission (SEC) published a growing list of companies, which could face delisting if the 2024 deadline set by the US Congress is not met.

Under the Holding Foreign Companies Accountable Act (HFCAA), the SEC has the authority to delist foreign-listed companies from exchanges if they fail to file reports required by the PCAOB for three consecutive years.

On April 29, a Bloomberg report mentioned that the Chinese government was discussing with US regulators the logistics of allowing on-site audit inspections of Chinese companies listed in New York, a sign of progress in talks to keep the US stock market open to Chinese issuers.

Regulators on both sides negotiated at the time on how to allow a team of PCAOB inspectors to visit China so they could review audit papers and access the reports of most of the 261 US-listed companies, according to the Bloomberg report.

Making progress in the standoff would show that Beijing is serious about boosting confidence in the market and balancing national security concerns with corporate needs, the April report said.

The Wall Street Journal report yesterday mentioned that Chinese regulators have told some companies in recent weeks that the government will support their US listings as long as they comply with domestic rules on data security and personal information protection.

Chinese regulators also said they would allow US accounting regulators unrestricted access to companies' audit records in Hong Kong, according to the Wall Street Journal.

Some US-listed Chinese companies, including Alibaba, are planning to convert their secondary listings in Hong Kong to primary listings because of the looming threat of involuntary delisting.

The Chinese electric vehicle trio - Nio, Xpeng Motors and Li Auto - have all completed secondary listings in Hong Kong, and Nio has even completed a listing in Singapore, offering investors an additional choice of the trading venue.

Earlier this month, five Chinese state-owned companies, including PetroChina Co, said they intend to delist their American depositary shares from the New York Stock Exchange. They cited low US trading volume and the administrative burden and cost of maintaining their New York listings.

This also raised some concerns at the time, though many industry participants believe that by voluntarily withdrawing from the US stock market, these state-owned companies are making way for emerging technology companies to maintain their listings there.

Although the Wall Street Journal report was not confirmed by either Chinese and US regulators, investor sentiment appears to have been boosted.

By Thursday's close, the Nasdaq Golden Dragon China Index jumped 6.26 percent to a one-month high, with Alibaba up 7.97 percent. Nio rose 6.41 percent, Li Auto rose 4.61 percent and Xpeng gained 1.89 percent.

NIO responds to being added to SEC's list of firms facing possible delisting