Today, US businesses seeking capital on our stock exchanges are subject to strict domestic security laws. But foreign companies do not have to comply with these standards if their domestic regulators do not require them to. Almost all countries have comparable transparency standards, but China stands out as an exception. This sets the perfect environment for financial fraud on a broad scale. Despite these risks, American stock index funds and ESG funds have been including Chinese stocks for quite some time. Further, many companies that have been sanctioned by the U.S. government still operate in the U.S. capital market system and are involved in the Communist Party’s military, espionage, human rights abuses. As a result, American investors are exposed to undue financial risks while unwittingly funding China’s military and technological development, and unknowingly supporting the Chinese Communist Party’s subjugation of its own citizens and its criminal activities against the United States.
YJ Fischer, Director, US SEC Office of International Affairs addresses recent regulatory developments related to the lack of US inspections of audits and investigations in China and Hong Kong, and the implications for continued trading of China-based issuers on US exchanges.
Biden administration concerned about U.S. investments in Chinese tech companies with military or surveillance ties
In 2020, a fast-rising artificial intelligence company in China won a little-noticed contract from a Chinese military academy to provide battlefield command software — technology that defense experts say could become part of the military’s operational network.
Many major stock and bond indices developed by index providers like MSCI and FTSE include companies that are listed on the Department of Commerce’s Entity List and/or the Department of Defense’s List of “Communist Chinese military companies” (CCMCs).