Although Wall Street has had strong influence on U.S. domestic and foreign affairs since the 1970s, Wall Street couldn’t handle Trump after he took office in 2016, Zhai Dongsheng said.
Over the years, many Chinese companies have gone public in the U.S. unregulated, and Wall Street has not only failed to stop them, but also lobbied for them. Chinese financial experts say: No matter how much Wall Street gives in to the Chinese Communist Party, they will never get the market access they want.
Helen Raleigh is a Chinese-American entrepreneur, author, speaker and CFA. Recently, The Federalist published Raleigh’s article, “Wall Street Loves the CCP’s Multi-Billion Dollar Lies”. In the article, she points out that Wall Street firms turn a blind eye to Chinese companies not following the rules and are willing to act as lobbyists for the Chinese Communist government to the detriment of U.S. and global investors.
She said that the Chinese Communist Party will never give Wall Street what it wants, and that one day Wall Street will regret it.
Gingrich, the former speaker of the U.S. House of Representatives, called the fraudulent behavior of Chinese companies listed in the U.S. a “Chinese (Communist) scam. Gingrich said the number of fraudulent Chinese companies is not a small number. He said his friend Dan David, a well-known U.S. short-seller, risked going to jail to investigate Chinese companies and found that the first 30 companies he investigated were all frauds; the CEOs of these companies simply held on to all the investment money and kept the scam going until they couldn’t continue; and because These scammers are in China, and there are no consequences for their theft of U.S. citizens’ money.
On December 18, President Trump signed the Holding Foreign Companies Accountable Act, under which the stock of Chinese companies that have not been inspected by U.S. regulators for three consecutive years will be prohibited from trading. The House unanimously passed the legislation in early December, and in May it was approved with bipartisan support in the U.S. Senate.
According to Rowley, Chinese companies have enjoyed open access to U.S. capital markets for years and have raised hundreds of millions of dollars from international and U.S. investors. There are currently more than 250 U.S.-listed Chinese companies with a combined market capitalization of more than $2 trillion. Capital from global investors has allowed these companies to expand their market share and has created many Chinese millionaires and billionaires.
However, these Chinese companies are not listed in the U.S. in compliance with U.S. laws. Raleigh noted that under the U.S. Securities Act, the work done by auditors of all U.S. public companies must be monitored and routinely inspected by U.S. regulators, such as the Security and Exchange Commission and the Public Company Accounting Oversight Board. However, the Chinese Communist Party has prevented U.S. regulators from inspecting the financial records and audit reports of Chinese companies on the grounds that national security is involved.
Raleigh writes, “This is a serious violation of investor protections.”
Fraudulent Financial Statements Wall Street Helps Chinese Companies Enter U.S.
It is well known that Chinese companies often falsify their financial statements. The Wall Street Journal has reported that in 2018 alone, U.S. auditors refused to endorse 219 annual reports prepared by Chinese companies. According to Rowley, this means that these auditors either found serious problems with these reports or expressed concerns about the survival prospects of these Chinese companies.
Raleigh said some locally developed Chinese accounting firms are as unreliable as their Chinese corporate clients. These firms have failed to help companies act as good gatekeepers and have turned a blind eye to problems with financial statements fabricated by their clients. For example, in 2019, a Chinese regulator found that a Chinese accounting firm called GP failed to disclose in its audit report that one of its firm’s clients had inflated its cash holdings by $4 billion.
Unfortunately, Raleigh notes, when a bad thing happens in China, it rarely stays there. With the help of Wall Street, some questionable, even fraudulent, Chinese accounting firms have come to the U.S. stock market. According to Wall Street’s optimistic predictions, these companies will be the next best thing for international investors to buy stocks.
Truth Revealed Amid Epidemic, Two Chinese Companies Explode in Accounting Scandal
But a major plague originating in Wuhan, China, exposed the lies that the Chinese Communist Party sold to international investors for hundreds of millions of dollars, and in April, two Chinese companies listed in the United States were hit by major accounting scandals, one of which was the Chinese chain Luckin Coffee.
Three Wall Street firms, Credit Suisse, Goldman Sachs and Morgan Stanley, made millions of dollars in 2019 by underwriting Ruixing’s initial public offering, Raleigh said. RuiXing’s initial public offering on the Nasdaq stock exchange provided the one-year-old company with tremendous credibility and allowed it to raise $645 million from investors on the promise that it would soon surpass Starbucks as the world’s largest coffee chain. in early 2020, RuiXing had a market cap of $5 billion and a share price of $51.
However, after a two-month blockade in China due to the Chinese Communist Party virus (Wuhan virus, New Crown virus), RuiXing’s luck ran out. on April 2, the company admitted that its chief operating officer and several employees fabricated about 2.2 billion yuan ($310 million in contracts) in sales, meaning that 75 percent of RuiXing’s financial statement sales for 2019 were false.
On the same day, RuiXing’s stock price plunged more than 80 percent and its market value shrank by more than $2 billion. But Raleigh noted that thousands of investors, including many Americans, had already suffered significant losses when Nasdaq finally delisted RuiXing.
That same month, another U.S.-listed Chinese company, one of the country’s largest education providers, revealed that employees had inflated the company’s sales by “falsifying contracts and other documents. Good Future’s shares fell 23 percent in one day, reducing the company’s valuation by $1.8 billion.
Rowley commented, “If Wall Street firms had conducted due diligence before underwriting the public offerings of these companies, and if the Communist government had allowed U.S. regulators to review their books from the beginning, these two companies might never have been listed on any U.S. exchange, and international investors would have been protected.”
Wall Street will regret it in the future
Rowley also believes that although the U.S. House of Representatives recently passed new legislation, Wall Street is not happy about it because it could mean that Wall Street will not continue to have access to lucrative underwriting deals for Chinese companies. What’s more, Beijing could retaliate by cutting off Wall Street’s wet dream: access to China’s financial markets.
Raleigh notes, however, that “Beijing has promised since the 1990s to open China’s financial sector to foreign financial firms, but has never delivered.” Instead, as the Wall Street Journal reports, the CCP ensures that the Chinese financial institutions it controls “have complete control over all sectors of the financial sector, from commercial and investment banking to private equity and asset management.”
Nevertheless, Wall Street still wants access to China and is trying to curry favor with the Chinese Communist Party. According to Rowley, Wall Street firms not only regularly lobby the U.S. government on behalf of the Communist government, but also eagerly support controversial policies of the Communist government to please Beijing. For Wall Street, as long as it makes money, it’s no big deal if the world is ruled by an authoritarian regime.
But, Rowley said, “they should care because ultimately, their own future will be at stake.”
Rowley points to the blocking of Ant Financial’s $40 billion IPO in both Hong Kong and Shanghai as a living example. Ant Financial Services is an arm of Chinese Internet giant Alibaba. The suspension of Ant Financial’s IPO has left investment banks, including JPMorgan and Citibank, looking at $400 million in underwriting revenue in their hands, and many of the thousands of small investors who invested in Ant Financial’s initial public offering through bank loans or their life savings not only did not get the benefit of the new shares’ appreciation, but lost a little in finance costs.
In essence, Raleigh argues, the Chinese Communist Party is using the ban to send a warning that it will never allow any private company, domestic or foreign, to dominate a sector of China, especially the financial sector. No matter how much Wall Street firms cave in to the CCP, they will never get the kind of market access they want.
One day, she writes, “they [Wall Street firms] may be crushed by the very authoritarian regime they have so feverishly and foolishly enriched.”
Wall Street Can’t Get Trump, U.S. Government Begins Restricting U.S. Investment in Chinese Companies
The Chinese Communist Party signed a memorandum with the U.S. Obama administration in 2013 exempting Chinese companies from submitting audits to the United States. This has allowed Chinese companies to exploit U.S. regulatory loopholes with impunity.
According to the U.S.-China Economic and Security Review Commission (USCC), a congressional advisory body, 156 Chinese companies, worth $1.2 trillion, were listed and traded on U.S. stock exchanges as of Feb. 25, 2019.
President Trump signed an executive order on Nov. 12 prohibiting U.S. investments in companies owned or controlled by the Chinese Communist Party’s military, effective Jan. 11 next year, and limiting the withdrawal of related investments to Nov. 11 next year.
As of now, the FTSE Russell, Minnesota and Nasdaq indices have all taken down the relevant Chinese companies.
Rep. Mike Gallagher, a Wisconsin Republican, introduced new legislation on Nov. 20 that would prohibit any U.S. person from investing in companies listed on the Commerce Department’s “Entity List of firms facing U.S. restrictions. The new legislation, the U.S. Financial Services Act, is designed to prohibit any U.S. person from investing in Chinese companies and individuals listed on the Commerce Department’s “Entity List of firms facing U.S. restrictions.
The new bill, the U.S. Financial Markets Integrity and Security Act, would further prohibit all Chinese companies on the Entity List from listing on U.S. exchanges and receiving investments from the United States. The bill would also restrict U.S. federal funds, U.S. insurance companies and pension funds from investing in these Chinese companies.
On the evening of December 7, Fox anchor Tucker Carlson explained how the Chinese Communist Party used the U.S. elite to influence U.S. policy throughout the 1990s and 2000s, using the revelations of Zhai Dongsheng, vice dean of the School of International Relations at Renmin University of China, as an example.
In his speech, Zhai made a rare reference to the fact that the CCP was able to fix the United States in the past decades because it had “old friends” in its powerful inner circle in the United States, namely Wall Street, who spoke for them. But all this came to an abrupt end with Trump’s rise to power, because Wall Street couldn’t handle Trump.
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