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With Joe Biden, Tapping US Capital Markets Will Be Even More Difficult For China Companies
As the Biden administration takes over the reins in Washington, the stakes have never been higher for America’s relationship with China and the rest of Asia. In the latest in a post-election series, Jodi Xu Klein explores the challenges facing Chinese companies listed in the US when large index provider MSCI raised China’s shares a year ago to the highest peso in a single country. In its emerging markets benchmark, the Trump administration supported legislation to isolate Chinese companies from US investors. That financial decoupling from China is still deepening. In November, US President Donald Trump signed an executive order prohibiting Americans from investing in 31 Chinese companies believed to have military ties. Since then, that number has grown to 35. Get the latest insights and analysis from our global impact newsletter on the great stories originating from China. “Those companies raise capital by selling securities to publicly traded US investors both here and abroad, pressuring US index providers and funds to include these securities in market offerings,” Trump said in an executive order signed Nov. 12. “The People’s Republic of China is increasingly exploiting US capital for resources and enabling the development and modernization of its military, intelligence and other security apparatuses,” he said. At the heart of the dissociation is fear in Washington about military-civil merger, a Chinese strategy designed to develop a world-class military by 2049, in part leveraging the technological capabilities of its private companies to accelerate the growth of its industry. defending. Under the incoming Biden administration, that approach to containing China’s military rise and its potential threat to American national security will hardly diminish. “The main concern is not allowing US money to finance military developments that will be bad for America.” said Anna Ashton, senior director of government affairs for the Washington-based China-US Business Council. “I don’t think with President-elect Joe Biden, it’s going to be a return to the status quo that was before the Trump administration. Restricting US investment in companies that have clear ties to China’s defense industry is the issue that matters most to most of the people at Hill. ” In recent months, Republicans from the House Foreign Affairs Committee released the Report of the China Task Force, the Senate on Foreign Affairs. The Relations Committee introduced the Strategic Bill and the Senate Foreign Democrats published the Leads Act, all of which addressed this issue of funding US capital for Chinese military-civilian fusion goals. The inclusion of Chinese stocks and bonds in global investment indices – MSCI, FTSE Russell, Bloomberg Barclays, and JPMorgan – means that hundreds of billions of additional US capital were added to fund Chinese companies because fund managers reflecting these indices as a strategy they are required to increase their holdings as the weight increases. The businesses behind these investments pose more danger than ever, at a time when tensions between countries have risen in flash points that include trade, technology, the military and human rights. US Securities Regulator Pushing Plan That Could Eliminate Chinese Companies MSCI reversed course on Tuesday, announcing the removal of 10 Chinese stocks from its benchmark indices after more than 100 surveyed market participants said that Trump’s executive order “may have a significant impact” as it “would effectively challenge the London Stock Exchange said earlier this month that it was falling shares of eight Chinese companies, including Hangzhou Hikvision, China Communications Construction and China National Chemical Engineering, of two of its main indices as of December 21. The following days, the S&P; The Dow Jones and Nasdaq indices announced the elimination of some Chinese companies. To further restrict the access of Chinese companies to US capital By selling shares on U.S. exchanges, Congress passed the listing rules as part of the defense bill that must be approved in early December. The bill, the Foreign Company Liability Act, also passed Congress and Trump signed it into law on Friday. The law requires Chinese companies to conduct audits for US regulators to review, reveal ties to the Chinese government, or stop trading their shares in the US within three years. “The law will not be repealed under the Biden administration,” he said. Jesse Fried, a Harvard Law School professor who focuses on corporate governance. The passage of the legislation, Fried said, was not “just because of Trump,” “it was because there was an underlying problem. We’ve had a lot of China-based companies in the United States that defrauded investors. ”American securities regulators have struggled with China for decades for failing to deliver audits of their companies, rules that all foreign and domestic stock companies follow. publicly traded. In China, it agreed on Wednesday to pay $ 180 million to settle the SEC’s charges for accounting fraud to make its income look better than it was. Under Biden, financial market policies are likely be as tough or even tougher on China, Fried said. The new administration will not make things easier for Chinese companies, if anything, it will make it harder, “he said.” The Biden administration will be less connected to Wall Street. The regulator appointed by the new president will be more interested in protecting investors and less interested in protecting Wall Street. ”Biden, however, will tend He will have to grapple with the strong investment interests Americans have in China and its implications for national security. Last year, China has opened its financial services industry to allow foreign companies to have majority control of their businesses there. Goldman Sachs and Morgan Stanley received approval from Chinese regulators in March to acquire 51 percent stakes in their businesses on the mainland. On December 8, Goldman said it planned to acquire 100 percent of its Chinese joint venture. “One hundred percent ownership of our franchise on the mainland represents a significant commitment and investment in China,” David Solomon, CEO of Goldman; John Waldron, its director of operations; and Stephen Scherr, its chief financial officer, said in an internal memo seen by the Post. “This is focused on growing and strengthening our existing businesses in China, expanding our addressable market and investing in talent and technology.” Others like BlackRock echoed that perspective. “In our view, there is a clear case for higher portfolio allocations to assets exposed to China for profitability and diversification,” Vice President Phillipe Hildebrand said in a report this month on investment prospects for 2021. US lawmakers urged to put ‘reciprocity’ at the center of the relationship with China “Risks to assets exposed to China include China’s high debt levels, the depreciation of the yuan and conflicts between the United States and China. But we think investors are well compensated for this, ”he said. However, a prominent Congressional panel has heeded caution. In its annual report to Congress released in December, the US-China Economic and Security Review Commission warned that China’s effort at financial openness was part of a “calculated strategy” to secure foreign capital to prop up the domestic economy. . “Increasing Exposure to China The financial system presents unique and significant risks to US investors, savers and retirees,” the report said. “Of particular concern is the growing inclusion of Chinese stocks in global investment indices. These inclusions are channeling hundreds of billions of dollars of US investment toward a financial system that lacks transparency, adequate risk pricing, and regulatory oversight. ”“ China is an adversary that presents unique and immediate threats to our economic and security interests, ”Robin Cleveland, the commission’s leader, said in the opening statement. He said the report reflected “an understanding that the challenges posed by the Chinese Communist Party are not partisan, they are American concerns.” Lawmakers’ unanimous support for the bill delisting law was evidence of strong bipartisan support a on China issues in a Congress that has not agreed on most other issues. “Everyone in Congress is more aggressive towards China than four or eight years ago. It’s one of the only things Democrats and Republicans agree on, “said Ashton of the China-US Business Council. Under Biden, the matter is likely to be handled more carefully, but still, Ashton said, “Dissociation will continue to be an issue. ”More from the South China Morning Post: * Trump administration cracks down on US investments in Chinese companies * Has China sneaked in with its military-civil merger plans? * Katherine Tai: Joe Biden’s US Chief Commercial Officer Pick ‘Unmatched’ on China Affairs Wouldn’t Be Soft on Beijing This Article With Joe Biden, Tapping the US Capital Markets Will Still Come Back toughest for Chinese corporations first appeared on South China Morning Post for the latest news from The South China Morning Post download our mobile app. Copyright 2020.
