The chairman of an influential Washington committee that examines US-China national security issues said on Thursday he feared that a “stampede” of initial public offerings in the US by Chinese companies could lead to a devastating “bubble” for US investors.
“As Chinese financial institutions prepare for an estimated combined $15bn [12bn, £8bn] in listings, questions need to be raised regarding the loan portfolios of these institutions,” Richard D'Amato, the chairman of the US-China Economic and Security Review Commission (USCC), said. “I am concerned that US investors may not have sufficient information to make informed decisions about the risks of these investments.” Yesterday's hearing focused on how Chinese companies determined where they list, the viability of the Chinese banking sector, and whether those banks were “subsidising” companies with ties to the Chinese military and to weapons proliferators.
Mr D'Amato and other members of the USCC are urging the Securities and Exchange Commission and other US regulators to be more proactive in their vetting of Chinese companies seeking US listings, particularly in the banking sector.
Mr D'Amato told the FT that he would ask Christopher Cox, the newly installed chairman of the SEC, to look at a variety of issues to prevent what he characterised as a potential “China bubble” as damaging to US investors as the dotcom boom and bust.
Mr Cox, who as a California congressman wrote a highly critical report on China in 1999, has argued in the past that the SEC has not gathered enough information on Chinese companies, which he said were using the US capital markets as a “source of central government funding for military and commercial development”.
Benn Steil, acting director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations, said it would be “disingenuous and self-defeating” for China critics in Washington to try to use the SEC to put pressure on China. Mr D'Amato a China hawk who in recent weeks vocally opposed the proposed bid by CNOOC, the Chinese oil company, to buy California-based Unocal said all international capital markets needed to “shine a spotlight” on how to perform due diligence on Chinese state-owned enterprises, “and fast”.
Mr D'Amato's critical views were balanced by testimony from some China experts who said the market had treated Chinese companies seeking public listings in the US “the same” as other foreign groups that had done so.