WASHINGTON – The Trump administration is debating whether to block Chinese companies from listing stocks on US exchanges, the latest push to try to break US-China economic ties, according to people familiar with the talks.
The internal discussions are in their early stages, and no decision is imminent, these people warned.
The talks come as senior officials from both countries plan to resume trade negotiations in Washington early next month. President Trump, who has continued to give mixed signals about the prospects of a trade deal with China, said earlier this week that a deal could come "faster than you think." His decision to postpone an increase in tariffs until mid-October and China's recent purchase of US agricultural products have fueled the optimism that the talks could make a deal.
But the prospect of further limiting US investment in China underlines the challenge that the two sides will continue to face even as they try to de-escalate a trade war that has shaken the global economy. The administration has already tightened oversight of foreign investment with a special eye on China, including the expansion of investment types that may be the subject of a national security review.
Last week, the Treasury Department unveiled new regulations describing how a 2018 law, the Foreign Investment Risk Review Modernization Act, will work to prevent foreign firms from using investments as minority stakes to capture sensitive US information . And the US has already blacklisted some Chinese companies, including Huawei, and effectively prevented them from doing business with US companies.
Shares fell on Friday after a report on the overlays was published by Bloomberg News. The market continued to slide through most of the day. Up close, the S&P 500 was down 0.5 percent and the Nasdaq composite index was 1.1 percent.
The losses were particularly steep in the technology sector, and among semiconductor stocks were two parts of the market that have been sensitive to the latest updates on the economic tensions between China and the United States.
Details of how the United States would restrict Chinese companies from US stock markets were still being drafted and the idea remained in its early stages, people said of the talks.
China hawks in the administration have been discussing the possibility of tighter restrictions on listed Chinese companies for many months. Supporters say the effort would close long-standing loopholes that have allowed Chinese companies with links to the government to take advantage of America's financial rules and solicit funds from US investors without proper disclosure.
Skeptics warn that the move could be deeply disruptive to markets and the economy and the risk of turning US investors and pension funds into another casualty of the trade war.
The effect of restricting Chinese firms from raising capital in the United States can be significant. As of the beginning of this year, 156 Chinese companies were listed on US stock exchanges and had a total market value of $ 1.2 trillion, according to the US-China Economic and Security Review Commission.
"The underlying concerns have merit, but how to deal with them without creating much collateral damage is difficult," wrote Patrick Chovanec, CEO of Silvercrest Asset Management, in a post on Twitter . of Chinese companies galore would clearly send shock waves through markets. "
The idea gained traction on Capitol Hill this summer as Republicans and Democrats in the Senate and House introduced legislation that would abolish firms that did not comply with US regulators for three years. The lawmakers claimed that Chinese companies have benefited from US capital markets while playing by a different set of rules.
US complaints center on lack of transparency about ownership and finances of Chinese firms, and business has long criticized China for classifying some auditors' reports on business economics as state secrets and overlap cross-border transfers of the auditor's documentation.
In 2015, the Chinese branches of Big Four accounting firms – Deloitte Touch Tohmatsu, KPMG, PricewaterhouseCoopers, and Ernst & Young – were paid $ 500,000 each to settle a dispute about their refusal to provide Chinese companies documentation to Securities and Exchange The Commission, as an American judge had stated, was a violation of US law.
The White House has become more interested in blocking Chinese companies in recent weeks, with some in the administration describing it as a top priority. Officials say the issue is not yet a topic in bilateral negotiations with the Chinese, and putting it into the talks could cause the negotiations to fall apart again.
"This will be a new step in scrapping the pressure," said Michael Pillsbury, a China scholar at the Hudson Institute who said he raised the concept of investment restrictions with the White House after negotiations with China broke down in the spring .
The White House declined to comment.
The concept has shared Trump's advisers in line with their usual lines of error, with Peter Navarro, Mr. Trump's trade adviser, campaign spokesman and Secretary of State Treasury Secretary Steven Mnuchin urging caution.
Discussions of new restrictions come as the Trump administration has pressured President Xi Jinping to open Chinese markets to US companies and investors, and as China has begun to relax some of its foreign investment regulations.
The logistics of adopting such a prop Osal remains somewhat turbid, especially with legislative measures in Congress that were largely halted amid political gridlock. The SEC, which oversees listed companies and stock exchanges, is an independent agency with three Republican commissioners and two Democrats and is not required to honor White House editors.
The Trump administration could unilaterally impose restrictions on national security, as it does with customs duties, on the grounds that US money is flowing to Chinese companies that pose a threat to the United States.
The administration also reviews how leading investment funds, including public employee pension plans, funnel money to Chinese firms and try to set limits for these vehicles.
For example, Thrift Savings Plan, the state retirement plan, is expected to change composition next year to include more exposure to emerging markets, including China.
This trend has been a natural consequence of China's economic growth. In 2019, China accounted for 129 of Fortune Magazine's list of the 500 largest global companies by revenue, while the United States produced 121. Chinese companies, including many state-owned enterprises, have become more important components of major stock indices in recent years.
But China skeptics in Congress, the administration and elsewhere fear that the scheme will still funnel US taxpayer money to companies that support the Made in China 2025 plan to dominate global industries, or a troubled monitoring state in Xinjiang.
We have unlimited funding for the Chinese Communist Party and their front organizations, ”said Stephen K. Bannon, the president's former chief strategist, during a Sept. 12 event organized by the Committee on the Current Danger: China, an organization that warns about an existential threat from China. “The Frankenstein monster that we must destroy is created by the West. It is created by our capital. It is created by access to our technology. "
" We have funded all this, "he added.