Beijing, Wall Street Could Deepen Ties Under Potential Biden Presidency

November 10, 2020 Updated: November 10, 2020

News Analysis

WASHINGTON—Wall Street has thrived under President Donald Trump even as many of its donors favored his Democratic challenger Joe Biden in the 2020 election. One reason for the preference for Biden might be discomfort with Trump’s China policies.

While the outcome of the U.S. presidential race is still unclear pending some legal challenges and recounts, a Biden win could be a boon for Wall Street. The investment banking industry has been lobbying the Trump administration to dial down tensions with Beijing.

During this election cycle, Wall Street contributed more than $70 million to Biden’s political campaign, much more than Trump received from hedge funds and investment banks, according to CNBC. That’s also more than Barack Obama collected from Wall Street in his two presidential runs combined.

Since Democrats raised a substantial amount of money from the sector, “that means to me they’re making deals,” Trump told reporters on Nov. 3 at his campaign headquarters in Virginia.

“What I didn’t do is call up Wall Street and say, send me $25 million … to the head of every firm. I could have done that. I would have been the all-time king of fundraising if I did that. But once you do that, you can no longer deal properly with them. You just can’t,” he said.

For more than a decade, Chinese companies have taken advantage of U.S. capital markets while operating under lax standards. Regulators in Beijing have refused to allow audit inspections of its U.S.-listed companies on the grounds of national security and state secrecy.

In 2013, during the Obama-Biden administration, a U.S. regulator, the Public Company Accounting Oversight Board, signed a memorandum of understanding (MOU) with Chinese regulators. The MOU gave Chinese companies improved access to U.S. capital markets without complying with the same disclosure rules required of U.S. companies.

The concession was part of then-Vice President Biden’s active involvement in strengthening the United States’ commercial ties with China. Transcripts from the Obama administration’s archives show that the agreement was reached after Chinese leaders held multiple meetings with Biden, according to a Just the News article published in May.

As a result of this concession, U.S. investors, through their pension funds, have been unknowingly transferring wealth from the United States to Chinese entities that don’t comply with U.S. standards. Some of these companies are sanctioned by the U.S. government even as they’re involved in the Chinese Communist Party’s military, espionage, and human rights abuses.

As of Oct. 2, there were 217 Chinese companies listed on U.S. exchanges, with a total market valuation of $2.2 trillion, according to the U.S.–China Economic and Security Review Commission.

American investment banks have a vested interest in fundraising for Chinese companies in U.S. capital markets because they earn substantial fees from these entities.

Crackdown on Chinese Companies

The Trump administration took several actions this year to curb money flowing from U.S. federal pension funds into Chinese stocks. The White House also released a plan that would require all listed companies, including Chinese, to come into compliance with U.S. standards by Jan. 1, 2022.

It’s unclear whether a Biden administration could reverse all the measures taken by Trump, given China’s plummeting popularity in the United States.

A rising number of Chinese companies are already considering delisting from U.S. stock exchanges because of the increased crackdown by Washington.

Thousands of Chinese companies that aren’t listed on the U.S. exchanges but have access to the U.S. financial markets through global index providers are also concerned about increased scrutiny. A dominant index provider, MSCI, last year substantially increased the weighting of Chinese shares in its global and emerging markets benchmarks, leading billions of dollars to flow into Chinese shares.

Many index funds and mutual funds own China-based stocks as they benchmark against MSCI indexes.

Concern over how U.S. pension and retirement funds are funding the rise of China’s totalitarian regime have prompted many U.S. lawmakers to call for greater oversight of investments in Chinese stocks. Most recently, Sens. Marco Rubio (R-Fla.) and Mike Braun (R-Ind.) introduced legislation that would prohibit U.S. investment funds from investing in Chinese companies that are placed on the U.S. Commerce Department’s trade blacklist or Pentagon’s list of communist Chinese military companies.

“Beijing is clearly concerned about China’s large-scale fundraising in the U.S. capital markets, which is becoming increasingly scrutinized, worrisome, and conditional,” Roger Robinson, president and CEO of Washington-based research and risk consultancy RWR Advisory Group, told The Epoch Times.

That concern could have partially played a role in Ant Group’s suspended initial public offering, he said.

“One can be sure that the Communist Party took note of the U.S. Cabinet-level attention and concern regarding Ant Group in the run-up to its IPO,” he said, adding that there is currently talk within the Trump administration about “taking actions that have the effect of reinforcing the provisions of the Rubio legislation.”

Last week, Chinese fintech giant Ant halted its record-setting $37 billion IPO in Shanghai and Hong Kong less than 48 hours before its debut.

Major U.S. banks Citigroup, JPMorgan Chase, and Morgan Stanley were among the main underwriters of Ant’s IPO. The listing was 872 times oversubscribed, underscoring strong demand for the company’s shares.

Strong demand also was evident in the recent Chinese sovereign bond offering. Last month, Beijing attracted more than $27.2 billion in orders for its $6 billion bond, which was marketed directly to U.S.-based institutional investors. Chinese bonds have a relatively higher yield than almost any other country’s bonds.

A senior executive at an investment management firm in New York, who asked not to be identified, said institutional investors still favor China because they’re desperate for yield.

“The problem is, global central banks’ policy of pushing rates down to zero or negative is really bad for institutional investors like pensions and insurance companies, who have to make a minimum yield. This is pushing them deeper into riskier asset classes like Chinese sovereigns,” he said.

“Also, most Wall Street folks don’t quite agree with Trump’s policy to ratchet up tensions with China. They think that China may be bad for some sectors like industrial or technology but not for Wall Street.”

Follow Emel on Twitter: @mlakan