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US President Donald Trump signed the Foreign Company Accountability Act last week, which allows the US to remove foreign companies from US exchanges if they fail to meet the audit requirements.
The legislation is aimed at Chinese companies. The non-partisan sponsors – Sen. Chris Van Hollen (D-Md.) And Sen. John Kennedy (R-La.) – say the law will protect Americans from being “deceived” and “exploited”[ed]“When you invest in Chinese companies that trade on US stock exchanges.
Before Trump signed the bill, both the US Senate and House of Representatives unanimously passed it – a clear example of how anti-Beijing legislation has united Democratic and Republican lawmakers like no other.
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A government watchdog earlier this month classified This Congress, the 116th, “the least productive in history”. The COVID-19 Aid agreement that Congress concluded on Sunday-and is now in doubt– is a prime example of the dysfunction; It took lawmakers eight months to find common ground. But legislation aimed at Beijing’s growing influence has sailed through both chambers this year.
This is because Washington “increasingly sees all Chinese companies as weapons of Beijing’s political and geopolitical ambitions,” said Michael Hirson, head of China and Northeast Asia at the Eurasia Group’s political risk advisory group. “Reality is more nuanced, but subtleties are being lost in today’s China debate,” Hirson said, as Capitol Hill is now dominated by a “prevailing consensus to be tough on China.”
A generation change
That was not always so.
According to Dane Chamorro, a partner in the Asia-Pacific practice of risk counseling Control Risks, the US-China relationship has been of generalized disagreement for decades. The new normal is the opposite – “a largely controversial one [relationship] with only episodic collaboration, ”said Chamorro, calling the change a“ generation change ”.
One reason for the development is China’s economic and technological advancement, which has made it more competitive with the US, says Hirson.
In recent years, China has made advances in robotics, artificial intelligence, 5G wireless Networks, and surveillance technology. Chinese companies like Huawei and Xiaomi dominate the global smartphone market and China has become a global leader in e-commerce, electric vehicles and digital payments.
“The tensions we are now seeing in the capital markets, including the delisting issue, are due in part to technical rivalry [U.S.] Financing Concerns for China’s Next Generation Nationals [tech] Champions, ”said Hirson.
Chinese State Department spokesman Hua Chunying spoke on December 3, the day after the US House of Representatives passed the delisting law called the plot a “concrete example of [U.S.] political repression of Chinese companies to curb China’s development. “
Chinese President Xi Jinping promotion the “civil-military merger,” a state-run initiative To strengthen cooperation between the private sector and the Chinese military, “the story in Washington also fueled that all Chinese companies are weapons for Beijing’s geopolitical targets,” said Hirson.
Then there is the Trump Effect.
Trump’s message was on the 2016 campaign trail widespread with sharp criticism of China. As president he packed his administration with “China falcon, ”Officials and advisors who view China as a threat to the US and advocate policies to counter this perceived threat.
The Trump administration has been persecuting a trade war with China; imposed Visa restrictions about members of the Chinese Communist Party, Chinese students, and Chinese journalists; and tried to ban Very popular Chinese owned apps Tick tock and WeChat.
The government’s aggressive campaign against China has postponed talks in Washington, Hirson said. “Both parties in Congress are far less inclined than in the past to represent the interests of the business community in China on perceived issues of national security and ideological competition with Beijing.”
Chamorro argues that US lawmakers’ bad attitude towards China predates the recent proliferation of China hawks in US policy making. He sees Xi as the main impulse. Since the Chinese President took office in 2012, he has pursued a “more aggressive foreign policy” than his predecessors. For example, China put Territorial claims to controversial islands in the South China Sea, alarming US lawmakers.
The month-long protest movement in Hong Kong in 2019 that made global headlines and Beijing’s subsequent imposition of a controversial one national security law US-China relations also deteriorated in the Territory, strengthening bipartisan consensus on China affairs.
Bipartisanism in China
The determination to counter Beijing was evident in the 2020 presidential election, when each campaign sought to demonstrate its “tough stance on China” and label the other as Beijing subservient.
During the Vice Presidential Debate in October, Senator Kamala Harris (D-Calif.) Accused the Trump administration of losing 300,000 US jobs in the so-called trade war with China, and Vice President Mike Pence called Democratic candidate Joe Biden a “cheerleader for the communist China”.
Campaign ads are transferred similar news: A Trump ad said Biden “is standing up for China” while a Biden ad said Trump “is rolling for the Chinese”. Each ad included a picture of the rival alongside Xi.
The campaign rhetoric is evidence that bipartisan sentiment towards Beijing is unlikely to change when President-elect Biden takes office in January, even though U.S.-China relations under Trump have fallen to their lowest level in decades.
In addition to the delisting law, this year Congress passed other laws against Beijing with similar support from both parties, particularly laws relating to Beijing’s heightened influence over Hong Kong and the treatment of the Uighur ethnic minority in the Xinjiang region.
Enacted law to extend U.S. refugee status to Hong Kong residents earlier this month passed the house without opposition. In July the Senate unanimously passed a law sanctioning Chinese officials who Washington said violated Hong Kong’s autonomy and penalized financial institutions for doing business with those officials.
In May, an invoice that individuals and organizations responsible for alleged human rights abuses in Xinjiang, where China’s government was accused of monitoring and imprisoning Uyghurs and other minorities, passed the Senate unanimously and then passed the House with only one vote against. Trump signed the bill in June.
At the same time, according to analysts, the legislature’s support for the delisting legislation is based on a genuine desire to protect US investors from risk.
The new law requires US stock exchanges to delist companies that fail to provide audit reports to the Public Company Accounting Oversight Board (PCAOB) for three consecutive years. The Chinese companies on US exchanges that could be delisted have a combined market capitalization of $ 1 trillion, which is roughly 3% of the total US stock market capitalization. according to on a June report by the investment bank China Renaissance.
The law applies to all foreign companies on US stock exchanges, but is particularly aimed at Chinese companies as China’s state secret laws apply do not let Chinese companies share certain financial information outside of China’s borders. So is US law requires Firms to disclose whether any of their board members are Chinese Communist Party officials.
For years, Congress has urged the US Securities and Exchange Commission (SEC) and PCAOB, overseen by the SEC, to reach an agreement with Chinese regulators that would allow the US to list US-listed audit records Chinese companies to review, Hirson said. The new delisting law addresses this requirement. In a political environment less hostile to Beijing, Congress may have pressured the SEC to take action “incrementally” rather than through law, to address the audit deadlock, Hirson said.
When the bill passed the House on December 2, the bill sponsored sponsor Sen. Kennedy said in a statement that “US policy is making China break the rules by which American companies play, and that is dangerous. “Co-sponsor Sen. Van Hollen criticized in his own statement” seemingly legitimate Chinese companies that are not subject to the same standards as other listed companies.
Both senators said The law would protect savers from fraudulent companies, and Van Hollen said Americans who invest their pension funds in US-listed Chinese companies have been “cheated of their money.” However, the risk for retirees is relatively low. According to a May report by China Renaissance, Chinese stocks and bonds accounted for 0.6% of total U.S. retirement assets under management in 2019.
Bruce Pang, head of macro and strategy research at China Renaissance, argues that the risk of investing in Chinese companies listed on US stock exchanges has remained the same for years and the new restrictions are “more politically motivated”.
Proponents of the law argue that the lack of financial information about US-listed Chinese companies puts US investors in stocks in those companies at risk. However, the existing SEC policy is already alerting investors to the limited transparency. Companies with offices in China are required to notify potential investors that American regulators cannot view the audit materials in mainland China. Companies must include it as a risk factor in their listing applications when going public on a US stock exchange.
Nevertheless, major scandals have contributed to the fact that the delisting legislation has gained in importance. The Luckin Coffee saga was the boss among them. In July, Nasdaq became delisted According to Luckin, the Chinese coffee chain said an internal investigation revealed significant sales fraud.
The SEC is currently Do some research Chinese education company GSX Techedu, listed on the New York Stock Exchange, for allegedly falsifying its sales. (GSX denied short-seller fraud allegations and said it was cooperating with the SEC investigation.) In November, San Francisco-based short seller Muddy Waters Research, who shorted Luckin and GSX earlier this year, stated.accused Chinese media platform JOYY of Fraud listed by Nasdaq. (JOY refused the accusations.)
US exchanges are still attractive to many Chinese companies. However, the new law is another reason Chinese companies are seeking capital can look elsewhere. “It makes less and less sense for Chinese companies to list in the US, especially for companies in strategically important sectors like technology,” said Hirson.
Chamorro said the new law can be designed to address US national security concerns, and that many Chinese publicly traded companies have “the very real problem of lack of transparency,” “from a domestic perspective it is very difficult not to support. “
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