Chinese Stock Firms Must Now Face New Restrictions

The House of Representatives has passed a law that means Chinese companies will be kicked off stock exchanges if they do not comply with its auditing rules. The act also means that companies will have to disclose whether they are owned or controlled by a foreign government, or face being removed from the exchange.

The Holding Foreign Companies Accountable Act is still awaiting President Trump’s approval and coincides with a general push to increase the pressure on China in the final weeks and months of the Trump presidency. The government also announced last week that it had moved to ban cotton imports from a company that it claims exploits detained Uighur Muslims.

“US policy is letting China flout rules that American companies play by, and it’s dangerous. Today, the House joined the Senate in rejecting a toxic status quo,” said Republican Senator John Kennedy, who is one of the bill’s authors.

The Trump administration also moved to take action against twist ties imported from Chinese manufacturers, imposing tariffs on the product to counter the effects of what the government calls Chinese currency manipulation.

“The Department of Commerce will continue to use the legal tools at our disposal to aggressively counter currency undervaluation and other unfair subsidies, further ensuring a level playing field for American businesses and workers,” Commerce Secretary Wilbur Ross said in a statement.

The department said that China’s ‘undervalued’ currency results in US producers being priced out of sales by Chinese twist tie manufacturers. US officials claim that China has been using these twist ties as a trade tactic, subsidising the product to intentionally disadvantage American producers. This is the first time the Commerce Department has imposed tariffs in order to reduce the impact of China’s currency.

China has responded with measures of their own, introducing new export control laws earlier in the week, a move that is seen by many as a response to recent US export controls on microchips that a large number of Chinese tech firms rely on.

“China’s systemic abuse of forced labor in the Xinjiang Region should disturb every American business and consumer,” said CBP Acting Commissioner Mark A. Morgan in a statement.

There has been some criticism of the act because of the little effect it will have over the short term since companies will only be banned if they fail to comply with audits for three consecutive years. The American Securities Association reacted positively to news of the bill’s passing but pleaded with the government to act sooner by removing non-compliant companies from exchanges by the middle of 2021.

The legislation actually applies to publicly listed companies from any foreign country, but its sponsors intended for it to target Chinese companies in particular.

President-elect Joe Biden has this week vowed to take a drastically different approach from his predecessor in regard to trade, claiming he will work with other countries to rewrite the rules of international trade.

Biden’s comments come in the wake of 15 Asia Pacific countries, including China, signing a historic trade pact; the Regional Comprehensive Economic Partnership covers almost a third of the world’s economy and population.

“We make up 25% of the world’s trading capacity, of the economy of the world. We need to be aligned with the other democracies – another 25% or more – so that we can set the rules of the road,” Mr Biden said. The alternative, he claimed, was to have “China and others dictate outcomes because they are the only game in town”.

In an apparent jab at Mr Trump, Mr Biden indicated that his administration’s foreign and trade policies would strike a different tone than those of his predecessor.

“I’m not looking for punitive trade. The idea that we are poking our finger in the eyes of our friends and embracing autocrats makes no sense to me,” Mr Biden added.

Although he would not say what deals the US might consider joining, Mr Biden outlined some of the conditions for US involvement in international trade agreements.

“One, we’re going to invest in American workers and make them more competitive. Number two, we’re going to make sure labor is at the table, and environmentalists are at the table in trade deals we make,” he said.

Mr Biden would not comment on whether he is considering signing the Regional Comprehensive Economic Partnership (RCEP) or the rival Trans Pacific Partnership (TPP). Mr Trump withdrew from the TPP earlier in his presidency, a trade pact that was initially backed by Mr Obama and his administration.

Mr Trump also introduced multiple trade tariffs on China and chose to impose tight restrictions on a large number of Chinese technology companies on national security grounds. Both the TPP and RCEP include many of the same countries but China was never a part of the former and the US was never a part of the latter.