Donald Trump issues memorandum to protect US investors from Chinese companies

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Published: June 5, 2020 12:02 PM

In his memorandum, Trump asked the treasury secretary to convene the President's Working Group on Financial Markets.

For decades, Chinese companies have availed themselves of the benefits of US financial markets, and capital raised in the US has helped fuel China’s rapid economic growth, Trump said.

It is wrong and dangerous for China to benefit from US capital markets without complying with critical protections that investors rightfully deserve, President Donald Trump said on Thursday as he issued a memorandum to protect American investors from Chinese companies.

For decades, Chinese companies have availed themselves of the benefits of US financial markets, and capital raised in the US has helped fuel China’s rapid economic growth, Trump said. The memorandum was issued to Secretary of State Mike Pompeo and other members of the top national security leadership. While China reaps advantages from US 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 US stock exchanges, Trump alleged.

“It is both wrong and dangerous for China to benefit from our capital markets without complying with critical protections that investors in those markets rightfully expect and deserve,” he said.  “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,” Trump said.

The president said for example, the Chinese government refuses to allow audit firms registered with the Public Company Accounting Oversight Board (PCAOB) to provide audit working papers to the board.  Recently, the Chinese government enacted a statute that expressly prevents audit firms from providing this information without prior consent of Chinese financial regulators, he said. Preventing the PCAOB from complying with its statutory mandate means that investors cannot have confidence in the financial reports of audited companies and this creates significant risks to investors in the securities listed on US stock exchanges, Trump said.

The Securities and Exchange Commission (SEC) and the PCAOB have pressed China for years to allow companies to provide greater transparency in financial information, to no avail, he rued.  Concerns about China’s efforts to thwart transparency requirements suggest significant risks even for investors in Chinese companies listed on US stock exchanges, the president said. Such companies may not provide appropriate and safe investments for investors, including pension funds, which owe fiduciary duties to their beneficiaries, Trump said.

“For these reasons, we must take firm, orderly action to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets.  “We must ensure that laws providing protections for investors in American financial markets are fully enforced for companies listed on United States stock exchanges, he said.

In his memorandum, Trump asked the treasury secretary to convene the President’s Working Group on Financial Markets. The group will discuss the risks to investors and financial markets posed by the Chinese government’s alleged failure to uphold its international commitments to transparency and accountability and its refusal to permit companies to comply with US law, according to the memorandum. The group has been asked to submit its memorandum in the next 60 days.

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