Jay Clayton Advocates for Disclosure of China Exposure to Benefit Investors and Policymakers
In a recent hearing held by the House Select Committee on the Chinese Communist Party (CCP) in New York, former Securities and Exchange Commission (SEC) Chairman Jay Clayton called for large U.S. corporations to unveil their financial exposure to China. This disclosure, he argued, would provide investors and policymakers with crucial insights into potential risks. Clayton proposed the implementation of a pilot program for public U.S. companies that meet specific criteria, mandating the disclosure of their China-related exposure.
Shedding Light on China ExposureUnder Clayton’s proposed program, companies with market capitalizations exceeding $50 billion or those with China-based revenues or costs surpassing $10 billion would be required to make these disclosures. Clayton emphasized that this initiative aimed to facilitate proactive risk assessment and scenario planning rather than imposing liability or punitive measures.
“This is not about liability, it’s not about ‘gotcha’ – it’s just about in the boardroom, if you have a substantial exposure to China, how have you thought about the type of risks that you’re talking about if they come to fruition and provide that information to investors,” Clayton stated during the hearing.
Mitigating Systemic Risks
In addition to providing investors with greater transparency, Clayton asserted that increased disclosure would contribute to reducing systemic risks within the U.S. financial system. These recommendations come at a time when economic competition and geopolitical tensions have escalated between the world’s two largest economies.
Heightened Tensions and ConcernsThe backdrop for Clayton’s proposal is the mounting concern over China’s espionage activities, human rights abuses against Uyghur Muslim minorities, and threats to neighboring regions like Taiwan, the South China Sea, and India. The U.S. has responded by tightening export controls on sensitive technologies and imposing sanctions on Chinese companies associated with the use of Uyghur forced labor.
Representative Ashley Hinson of Iowa, a member of the select committee, expressed concerns about how U.S. capital flowing into China could inadvertently support the CCP’s activities, including military endeavors, genocidal actions, and technoauthoritarian ambitions. Increased transparency is vital to strategically decoupling from China, ensuring our long-term economic prosperity, and protecting American workers from China’s destructive policies,” she emphasized.
Discrepancies in Disclosure Standards
Ranking Member Raja Krishnamoorthi of Illinois pointed out that over 250 Chinese companies, with a total market capitalization exceeding $1 trillion, are listed on U.S. stock exchanges. However, these firms do not adhere to the same disclosure standards as U.S. companies, making it challenging for investors to assess risks accurately.
Krishnamoorthi highlighted the CCP’s crackdown on disclosing risk and due diligence, resulting in a situation where “risk can’t be properly assessed.” This discrepancy raises concerns about the transparency and integrity of investments in Chinese companies trading on U.S. exchanges.
In conclusion, former SEC Chair Jay Clayton’s call for increased transparency in disclosing China exposure by large U.S. corporations underscores the need to address potential risks amid growing economic competition and geopolitical tensions between the United States and China. Such disclosures could serve as a vital tool for investors and policymakers in navigating the complex landscape of U.S.-China relations in the business world.