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US-China rift becomes a legal feud

The trade war between the US and China began with streams of rhetoric. When former President Donald Trump first imposed Rates On China, in 2018, he made a series of accusations against one of America’s largest trading partners.

Beijing, he said, stole intellectual property, set up market barriers, forced technology transfers from American companies and transformed its currency value.

Four years later, the rhetoric subsided. Now, the trade war between the two powers of the world is more characterized by complex legal work than by the barrages of desalination across the Pacific. And activity is particularly intense in two areas: technology and finance.

These are no small matters. Rhodium Group, consulting company, calculated At the end of 2020, the total value of two-way stock and bond holdings between China and the US was about $ 3.3 billion – indicating that if the financial disconnect really takes place, the impact will be significant.

“Washington has traditionally taken a very liberal approach to financial globalization, but a new era of strategic competition with China has led to a redrawing of national security borders,” the Rhodium report said.

Roger Robinson, president of RWR Advisory Group, a consulting firm in Washington, D.C., sees a growing rift in US-China financial relations. Recently noted FT Podcast.

“For the past 20 years, no single Chinese company (registered in the US) has complied with US federal securities laws,” Robinson said.

China does not allow the U.S. Public Accounting Standards Board (PCAOB) to conduct audits of audits conducted in China, meaning about 270 Chinese companies traded on U.S. stock exchanges are not subject to U.S. regulatory regulatory oversight.

However, China is now showing signs of compliance. Fang Xingai, deputy chairman of the China Securities and Exchange Commission (CSRC), said in April that he “very much hopes” an agreement can be reached with U.S. regulators in the near future. If this materializes, the threat of delisting from the US stock market that hangs over Chinese companies traded in the US will begin to dissipate.

If not, listing is set to begin in 2024. The U.S. Securities and Exchange Commission added 80 Chinese companies this month To her membership list May be removed from U.S. stock exchanges under the Liability of Foreign Companies Act. Retailer JD.com, Luckin Coffee chain and electric car maker Li Auto are among those on the list.

Another major legal issue that is casting clouds on the future is the US-China technology supply chain, which is very interconnected. The latter.

However, so far, this linkage disconnect has remained largely in potential rather than in reality. Paul Triolo, senior vice president of business consulting firm Albright Stonebridge Group, says China’s position as the largest, most efficient and lowest cost point in the global supply chain makes it difficult for American manufacturers to relocate their operations outside the country.

“Probably, over the next five years, you will have about 5 or 10 percent of the advanced production coming out of China,” says Triolo.

He adds that alternative manufacturing centers, such as Mexico, do not meet the terms of the quality of the goods produced or the responsiveness of the service. The costs of capacity transfer from China are also high. “You have to think about the investment [such a shift] Will demand, “he says.

Nevertheless, there are a number of legal provisions for the U.S. to punish Chinese companies or deny them access to American technology. These include the Department of Commerce’s “entity list,” which uses legal sanctions to punish those considered “bad players.”

In addition, the Department of Defense has a “list of Chinese Communist military companies,” whose shares will not be bought by American investors, and the Treasury Department has a list of “Special Dedicated Citizens,” through which it can enact a freeze on assets and bans on travel to the U.S. or conduct business with U.S. entities. .

But perhaps the most influential weapon in this technology war is Cfius, the U.S. Foreign Investment Commission, which examines U.S. investment and can block those it thinks are undesirable. Since its operations intensified in 2018, with the Modernization of Foreign Investment Risk Review Act, the direct investment of Chinese technology companies in the US has dropped to almost zero.

Similarly, the Export Control Reform Act, also passed in 2018, is designed to prevent sensitive technologies from falling into Chinese hands. The Department of Commerce continues to approve the vast majority of technology export licenses to China, but its denial rate has doubled in recent years.

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