Large U.S. companies should start disclosing their exposure to China to shed light on potential risks for the benefit of investors and policymakers, the former head of the Securities and Exchange Commission (SEC) told lawmakers on Tuesday.
Jay Clayton, who led the SEC from 2017 to 2020, testified at a field hearing held by the House Select Committee on the Chinese Communist Party (CCP) in New York and proposed a pilot program in which public U.S. companies that meet certain thresholds would disclose their exposure to China. Under his proposal, companies with market capitalizations over $50 billion or with China-based revenues or costs over $10 billion would make the disclosures.
"This is an area where I would at least consider a pilot program for very large companies disclosing the China-specific risks and what sort of scenario planning they have done in the event of an abrupt decoupling," Clayton told the panel. "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, who testified alongside Wall Street investor Jim Chanos and short-seller Anne Stevenson-Yang, added that the increased disclosure would reduce systemic risks to the stability of the U.S. financial system.
Clayton’s suggestions come amid heightened economic competition and geopolitical tensions between the world’s two biggest economies.
China is facing mounting allegations related to its espionage activities after a spy balloon transited the U.S. earlier this year, in addition to criticism over its human rights abuses against Uyghur Muslim minorities and threats towards its neighbors in Taiwan, the South China Sea and India.
The U.S. is ratcheting up export controls to prevent sensitive technologies from being sold to Chinese firms and has sanctioned a number of Chinese companies linked to the use of Uyghur forced labor.
"When U.S. capital flows to China, it props up the CCP’s military, genocide and technoauthoritarian aspirations," select committee member Rep. Ashley Hinson, R-Iowa, told FOX Business. "Many Americans are unwittingly funding the CCP’s malign activities, essentially fueling China’s attempted takedown of the United States. Additionally, the CCP doesn’t play by the same rules American companies do — investors have no guarantee they’ll get their money back if the CCP decides to pull the plug one day."
"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 added.
Ranking Member Raja Krishnamoorthi, D-Ill., noted that there are over 250 Chinese companies listed on U.S. stock exchanges with a total market cap of over $1 trillion, but those firms don’t follow the same standards in terms of disclosures to protect investors.
"The CCP is cracking down on the very act of disclosing risk," he said during the hearing. "The CCP is doing this by cracking down on due diligence to the point where the U.S. Chamber of Commerce has said that ‘risk can’t be properly assessed.’"
"The CCP is so afraid of bad news getting out that they’ve stopped publishing their skyrocketing youth unemployment numbers, and instructed investment banks to avoid publishing politically sensitive data that could make the Chinese economy look bad," Krishnamoorthi added.
Reuters contributed to this report.