President Donald Trump has pledged to instruct his Presidential Working Group on Financial Markets to study the operational behaviors of Chinese-based companies in American markets, citing potentially abnormal behaviors that may be adverse to the interests of the American investment firms that allocate capital to them.
The announcements came in a package of repercussions directed toward the Chinese Communist Party in relation to its treatment of the coronavirus pandemic, which the president alleges was diligently protected from spreading to other parts of China, but not the rest of the world.
The administration’s group will be instructed to “study the differing practices of Chinese companies listed on the US financial markets, with the goal of protecting American investors,” Trump said. “Investment firms should not be subjecting their clients to the hidden and undue risks associated with financing Chinese companies that do not play by the same rules.”
Trump noted that American companies should be granted additional modicums of corporate transparency when dealing with Chinese companies.
Whether or not this investigation could be a prelude to decisionmaking related to American investments in Chinese companies, the president’s statements come soon after the White House and the US Department of Labor (DOL) instructed the Federal Retirement Thrift Investment Board (FRTIB) from moving forward with previously approved decisions to invest in global public equity indices inclusive of Chinese state-owned companies.
The idea was originally propagated by congressional lawmakers who detested the merits of investing in Chinese companies, citing that engaging in such capital allocations in Chinese companies infringes on American national security interests.
“It is well-known that the Chinese government uses state-owned and state-directed enterprises to control production, compete in global markets, and serve the Chinese Communist Party’s military, political, and economic goals,” said Sens. Jeanne Shaheen and Marco Rubio in a letter to FRTIB Chairman Michael Kennedy. “Many of these Chinese companies may soon receive investments directly from the paychecks of members of the US Armed Services and other federal government employees because of your decision.”
The index in question is the MSCI ACWI ex USA IMI, which includes a selection of securities deviating between industry and region, including a significant allocation to China.