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Washington, D.C. — U.S. Senator Marco Rubio (R-FL) welcomed an Executive Order by President Trump to prohibit U.S. investments in Chinese firms that are on the U.S. Department of Defense list of Communist Chinese military companies. The move closely resembles legislation that Rubio introduced last month.
 
The American Financial Markets Integrity and Security Act would prohibit malign Chinese companies — including the parent, subsidiary, affiliate, or a controlling entity — that are listed on the U.S. Department of Commerce Entity List or the U.S. Department of Defense list of Communist Chinese military companies from accessing U.S. capital markets. A one-pager of the legislation is available here.
 
“The Chinese Communist Party’s exploitation of U.S. capital markets is a clear and ongoing risk to U.S. economic and national security, and today’s action by the Trump Administration is a welcome start to protecting our markets and investors,” Rubio said. “Congress should quickly follow suit by passing my American Financial Markets Integrity and Security Act, which would ban these companies from operating in U.S. capital markets and make clear to the Communist Party that they will no longer be able to take advantage of our financial system. Importantly, today’s action also lays down a clear marker for U.S. policy going forward — we can never put the interests of the Chinese Communist Party and Wall Street above American workers and mom and pop investors.”
 
Currently, there are a number of Chinese companies, including over thirty that were identified on lists released in June and August 2020 by the Pentagon, as well as networks of affiliated and subsidiary companies. This includes those companies that have been sanctioned by the U.S. government that are operating in the U.S. capital market system and are involved in the Communist Party’s military, espionage, human rights abuses, “Military-Civil Fusion Strategy,” and the Made in China 2025’ industrial policy.
 
Last year, Rubio introduced the Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act, bipartisan, bicameral legislation to ban Chinese and foreign firms that flout U.S. laws from U.S. exchanges. Rubio previewed the legislation in an op-ed in The Wall Street Journal. A one-pager of the legislation is available here. Key Rubio provisions were included in Senator John Kennedy’s (R-LA) Holding Foreign Companies Accountable Act (S.945), which passed the Senate on May 20, 2020.
 
In May 2020, Rubio and Senator Jeanne Shaheen (D-NH) welcomed the announcement by the Federal Retirement Thrift Investment Board (FRTIB) that it would halt its short-sighted decision to invest billions of dollars from the Thrift Savings Plan (TSP) — the retirement assets of federal government employees, including members of the U.S. Armed Forces — in opaque Chinese firms engaged in human rights abuses and a wide range of military-related activities. Rubio and Shaheen also led a group of lawmakers in introducing the bipartisan, bicameral Taxpayers and Savers Protection (TSP) Act, which would prevent the FRTIB from steering federal retirement savings to China. Specifically, the FRTIB plans to shift the TSP’s International Fund Index to the MSCI All Country World ex-U.S. Investable Market Index that includes Chinese companies under U.S. sanctions and U.S. export bans.
 
Background:

• In February 2020, the Securities and Exchange Commission (SEC) released a statement regarding the difficulties U.S. regulators face when auditing U.S.-listed companies based in China, and how over the past decade, U.S. investors, and the U.S. capital markets more generally, have become more exposed to companies with significant operations in emerging markets, including China, the largest emerging market economy.
• In December 2018, the SEC and the Public Company Accounting Oversight Board (PCAOB) issued a joint warning to investors about the challenges American regulators face when attempting to conduct oversight of U.S.-listed companies whose operations are based in China and Hong Kong.
• While the PCAOB regularly inspects audits of U.S.-listed firms at home and abroad, Beijing consistently and systemically challenges those efforts. For example, Chinese law requires that records remain in China, and the Communist Party routinely restricts access to typical accounting information on the grounds of national security and state secrecy.
• The U.S.-China Economic and Security Review Commission identified 156 Chinese companies, including 11 state-owned-enterprises, that are listed on America’s three largest exchanges with a combined market capitalization of $1.2 trillion.
• In March 2018, the influential global index provider MSCI announced that it would quadruple its weighting of Chinese company shares in one of its key index products.