Trump's next major China decision pits stock market stability against national security concerns
'We made our law secondary to the dictates of the Communist Party, for the sake of trading profits.' - China scholar Derek Scissors
The Facts Inside Our Reporter’s Notebook
President Trump often touts strong Wall Street gains under his presidential tenure as a sign of his economic prowess, yet a major China policy decision pending before his administration pits stock market stability against national security concerns.
At issue is whether Chinese companies — worth as much as $1.9 trillion — should continue to receive special treatment while listing their shares on U.S. stock exchanges. An Obama-era exemption allows them to avoid full compliance with financial accounting and transparency standards that companies from the U.S. and other nations must meet.
As Just the News previously reported, the exemption for China was inked seven years ago through a memorandum created by the Public Company Accounting Oversight Board (PCAOB), a nonprofit regulator empowered by the Sarbanes-Oxley law to ensure U.S. investors are protected from making bad investments because of faulty audits or financial information.
In the wake of the COVID-19 pandemic, which originated in China, policymakers have grappled with overreliance on Chinese goods and services. In May, the U.S. Senate passed (by a 98-0 vote), and the House introduced, a bill that would kick these Chinese companies off U.S. stock exchanges within three years, unless they meet the same accounting standards as other countries. The Wall Street Journal and other business publications noted that shares of Chinese companies listed on U.S. exchanges plummeted after the Senate passed the bill.
Nearly two months ago, the president announced in the White House Rose Garden that "to protect the integrity of America's financial system" he was instructing his Presidential Working Group on Financial Markets "to study the differing practices of Chinese companies listed on the U.S. financial markets with the goal of protecting American investors."
Neither the White House nor the Treasury Department responded to requests for comment from Just the News.
"I actually don't think this needs to be referred to a working group," China expert and author Gordon Chang told Just the News in an interview, dismissing concerns that Chinese investments would then move to be listed in Frankfurt, London or Hong Kong instead. "The question is whether we’re sovereign or not. It's just as simple as that ... It's not that hard to understand. Of course we're going to lose listings, there's no question. China wants to list its companies elsewhere, and companies would make this decision on their own, even if there was no interference from Beijing. The point is, can we afford to undermine the integrity of the U.S. financial markets? No."
Chang noted that the listed firms include tech giant Alibaba, currently listed on the NYSE alone with a market capitalization of nearly $700 billion.
"If we allow China to do this, then what's to prevent other countries from obtaining similar waivers?" Chang said. "It was a fundamentally wrong decision when it was made, and it's a very simple decision now. You treat companies from Estonia the way you treat companies from China."
As Just the News' John Solomon has reported, China asked for the accounting exemption from then-Vice President Joe Biden, who was a point man for Obama on many issues related to China and frequently visited with Chinese leaders, according to documents in the Obama administration's archives. Biden himself embraced China's economic emergence as good for the world.
"I've held the view for so many years and continue to hold the view that a rising China is a positive development," Biden declared in a 2011 speech.
Biden hosted current Chinese President Xi Jingping, then Beijing's vice president, at an event in August 2011 where the Chinese leader urged that the Obama administration "eliminate the interferences of trade and investment protectionism" in American markets, according to a transcript in the Obama administration archives.
"President Trump has complete clarity when it comes to China's economic malfeasance," Brian T. Kennedy, author of "Communist China's War Inside America," told Just the News in an email interview. "He has an historic opportunity to correct the errors of his predecessors, especially the Obama Administration, to ensure that Chinese corporations are playing by the same rules as American corporations."
Kennedy, who serves as chairman of the Committee on the Present Danger: China, said that by rescinding the 2013 memorandum Trump would be protecting both U.S .investors and U.S. businesses.
"Our freedom and prosperity are due in no small part to our belief in the rule of law," Kennedy said. "Why would we not want this for other nations as well? The Committee on the Present Danger: China believes that all corporations, from any nation, should play by the same rules as any U.S. corporation when it comes to raising capital in our capital markets. That is only common sense. That we would allow the People's Republic of China to be given special preference is unconscionable. This is especially egregious given that the Chinese Communist Party has declared a People's War against the United States."
Derek Scissors, a China scholar at the American Enterprise think tank, told Just the News in an email interview that the exclusive legal exemption for Chinese firms "was done because the Chinese Communist Party does not allow normal corporate disclosure, on the grounds that it can involve state secrets. In other words, Chinese companies are not permitted to be honest, so either we let them lie or we don’t get their listings."
Scissors called the accounting exemption standards for China "unnatural" and said the United States "can strip it at any time."
"We made our law secondary to the dictates of the Communist Party, for the sake of trading profits," Scissors said. "When the pro-China side cites capitalization, that's an intentional and wild exaggeration — money is not made from capitalization. Their other defense is China will list elsewhere if we require transparency. By that logic, we should drop all disclosure requirements and would benefit greatly from stock listings by Russia, organized crime, etc. Even if anyone will admit to opposing disclosure, there’s no justification for only exempting China."
Scissors is suspicious of the Senate-passed bill for its three-year phase-out period.
"There could be an issue of giving enough warning, but this has been talked about for months and, if anything should be 'proceed at your own risk,' it's buying into Chinese firms which don't disclose," Scissors said. "Congressional legislation requiring Chinese compliance in three years is stalling, masquerading as toughness, because Senate Banking won’t do more. The administration working group may turn out to be the same thing if Treasury aligns with Senate Banking."
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