Friday, May 22, 2020

Professor Balding: "China, the SEC, and Strategy"

Almost as soon as I mention (May 17):
...Via Professor Christopher Balding who for years hung his hat at Shenzhen's Peking University HSBC Business School.
(here's a lengthy Inside Higher Ed piece on his departure)
Balding tweets a lot, his blog not that much.
He goes and posts to his blog (May 21) for the first time in almost eight weeks:
China, the SEC, and Strategy
There are a grab bag of issues that have popped up about China so let me try and hit them and wrap it all up into some type of coherent big picture idea.

First, I had heard recently Sen. John Kennedy had introduced a bill to effectively delist Chinese companies listed on US markets unless they effectively submit to big boy audits and SEC jurisdiction. This issue has been floated numerous times and in slightly different ways in the past couple years so I did not pay it much attention as many bills get submitted and die. I was surprised to wake up this morning and see that it has already passed the Senate.

According to Politico California Rep. Brad Sherman has already introduced a bill in the House with identical language. This is going to be interesting to watch the legislative sausage. What is notable is that it passed the Senate by unanimous consent. What makes this time so notable is there has been so little push back that have typically accompanied previous floating of this idea. I don’t know if this is simply because it happened relatively fast but given how it passed in the Senate, that will create enormous pressure in the House to pass it. The other issue is that there is no language about US investment capital going to China via indexes or other channels. This bill only deals with Chinese firms listed in the US. What is notable is that Chinese firms for most of the past decade have been allowed to eschew SEC jurisdiction and standard US accounting requirements for public firms. This matters because this bill does not impose any type of extra ordinary standard on Chinese firms, it only requires them to adhere to the standards that all other listing firms adhere to.

Second, the White House has released a document entitled “United States Strategic Approach to the People’s Republic of China.” The document is measured and realistic in its assessment of the challenge posed by Communist China. It includes such highlights as:
“ Since the United States and the People’s Republic of China (PRC) established diplomatic relations in 1979, United States policy toward the PRC was largely premised on a hope that deepening engagement would spur fundamental economic and political opening in the PRC and lead to its emergence as a constructive and responsible global stakeholder, with a more open society. More than 40 years later, it has become evident that this approach underestimated the will of the Chinese Communist Party (CCP) to constrain the scope of economic and political reform in China.”

“The CCP has chosen instead to exploit the free and open rules-based order and attempt to reshape the international system in its favor. Beijing openly acknowledges that it seeks to transform the international order to align with CCP interests and ideology. The CCP’s expanding use of economic, political, and military power to compel acquiescence from nation states harms vital American interests and undermines the sovereignty and dignity of countries and individuals around the world.”....