PRESENT DANGER CHINA - Aug 7, 2020 -
Committee on the Present Danger: China Calls for End to Non-Compliant PRC Firms’ Access to U.S. Cap Markets Not Later Than January 1, 2021
WASHINGTON — Last month, Senator Marco Rubio called on Treasury Secretary Steve Mnuchin in his role as the chairman of the Presidential Working Group on Financial Markets (also known as the Plunge Protection Team or PPT) to put real teeth into recommendations requested by President Trump in the wake of the Chinese Communist Party’s snuffing of freedom in Hong Kong. In particular, the Chairman of the Senate Intelligence Committee declared: “Firms listed on American exchanges whose audits are shielded from inspection by the PCAOB should be deregistered by the SEC subject to a warning period under which such firms can come into compliance” (emphasis added).
Unfortunately, but unsurprisingly given Sec. Mnuchin’s close ties to Wall Street and those of other members of the PPT — notably, Securities and Exchange Commission Chairman Jay Clayton and Federal Reserve Board Chairman Jay Powell — the Working Group will reportedly Solomonically split the proverbial baby: According to an article in the Wall Street Journal, Team Mnuchin will recommend that CCP companies failing to meet U.S. standards for audits be “delisted” (a much less consequential step than deregistration), but not until 2022. Other Chinese companies traded, but not listed, in U.S. markets would — apparently by design — not be covered. The Working Group will also reportedly recommend allowing “co-audits” of Chinese companies, rather than having them be subject to a direct PCAOB audit — as is required for all American companies in our markets.
The Journal article makes clear that the practical effect of such a course of action would be to acknowledge the inherent danger for investors of putting their money into potentially fraudulent Chinese companies. Yet, such companies would be allowed to continue soliciting and attracting funds in America’s capital markets for another two years. There is no rational basis for affording the CCP an opportunity to obtain potentially a trillion dollars or more — on top of the $3 trillion it is already estimated to have garnered in the U.S. equity and debt markets — all without having to play by our rules.
It would be bad enough if the certain result of such an arrangement were simply to set up American private and public investors for more fraud and losses at the hands of the Chinese Communist Party, d.b.a. non-transparent corporations. Worse yet, a succession of senior U.S. officials — including Secretary of State Mike Pompeo (for example, here and here), Attorney General William Barr, Labor Secretary Eugene Scalia, National Economic Council Director Lawrence Kudlow and National Security Advisor Robert O’Brien (here and here) — have warned that, in addition to such undisclosed material financial risks, these companies can also pose threats to our national security and human rights values. President Trump has made similar points (for example, here).
A possible explanation for this gambit that would allow CCP companies to continue perpetrating such harm for two more years is the expectation that Donald Trump will not be president then and in a position to implement such a restriction on Communist China’s access to further American underwriting. Such a calculation would, of course, be disloyal to the president in whose Cabinet Mr. Mnuchin serves and contrary to the national interest.
The Committee on the Present Danger: China believes the reported Mnuchin recommendation is unacceptable in its present form and must be modified as follows: