Donald Trump has set a 60-day deadline for US financial regulators to recommend ways to crack down on Chinese companies listed in America that fail to abide by proper accounting standards.
The move on Thursday will intensify the debate in Washington over financial decoupling with Beijing, at a time when bilateral tensions between the world’s largest economies have already been heightened by China’s handling of the coronavirus pandemic and the national security law imposed on Hong Kong.
Mr Trump said in a memorandum that he was instructing the presidential working group on financial markets — which includes Steven Mnuchin, the US Treasury secretary; Jay Powell, the Federal Reserve chairman; Jay Clayton, the chairman of the Securities and Exchange Commission; and Christopher Giancarlo, the chairman of the Commodity Futures Trading Commission — to suggest actions the executive branch could take to curb certain Chinese listings in the next two months.
“While China reaps advantages from American markets . . . the Chinese government has consistently prevented Chinese companies and companies with significant operations in China from abiding by the investor protections that apply to all companies listing on United States stock exchanges,” the US president wrote.
US officials have been particularly concerned that the Chinese government is preventing auditing firms from providing the US Public Company Accounting Oversight Board, or PCAOB, with the paperwork it requires for auditing inspections of companies listed in the US. This year’s accounting scandal involving Luckin Coffee, a Chinese company that listed in the US in 2019, further exacerbated those worries.
“China’s actions to thwart our transparency laws raise significant risks for investors. The time has come to take firm action in an orderly fashion to put an end to the practice that has tacitly permitted companies with significant Chinese operations to flout protections United States law requires for investors in United States markets,” Mr Trump said.
Financial tensions between Washington and Beijing have risen in recent weeks, after the Trump administration made a separate move to stop the largest US federal pension fund from investing in indices that include certain Chinese companies suspected of having close ties to the military.
But American officials face a delicate balancing act in adopting policies that could lead to a wave of Chinese companies delisting from US exchanges, let alone a broader separation of Wall Street from lucrative ties to China that have grown in recent years.
A more aggressive crackdown by the US could disrupt financial markets at a time when they are just recovering from the pandemic shock and still face an uncertain and potentially volatile outlook.
Last month Baidu, the Chinese internet group, said it was considering its options with regards to its own listing on the Nasdaq exchange.
“Our basic judgment is that if you are a good company, there are many options for where to list, and it is not limited to the United States,” Robin Li, Baidu’s chief executive, told the China Daily newspaper on the sidelines of China’s annual legislative session. “We are not too worried that the suppression of the US government will have an irreparable impact on the company’s business.”
Mr Trump’s move came as Robert Lighthizer, the US trade representative, sought to offer reassurance about the fate of the trade deal reached in January after a two-year escalation in tariffs with China. “On the structural changes, China has done a pretty good job,” Mr Lighthizer told the Economic Club of New York. “And we’ve seen significant purchases over the course of the last many weeks.”