Jay Clayton advocates for China exposure disclosure for the benefit of investors and policymakers
At 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 on major US companies to disclose 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 publicly traded U.S. companies that meet specific criteria, mandating disclosure of their China-related exposure.
Shedding Light on China Exposure Under Clayton’s proposed program, companies with a market capitalization of more than $50 billion or companies with China-based revenues or costs of more than $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 impose liability or punitive measures.
“This isn’t 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 kind of risks you’re talking about if they materialize ? and provide that information to investors,” Clayton stated during the hearing.
Mitigate systemic risks
In addition to providing greater transparency to investors, Clayton asserted that greater disclosure would help reduce systemic risk 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 concerns The backdrop to Clayton’s proposal is growing concerns about Chinese espionage activities, human rights abuses against Uyghur Muslim minorities, and threats to neighboring regions such as Taiwan, the South China Sea and India. The US has responded by tightening export controls on sensitive technologies and imposing sanctions on Chinese companies involved in the use of Uighur forced labor.
Representative Ashley Hinson of Iowa, a member of the select committee, expressed concern about how American capital flowing into China could inadvertently support the CCP’s activities, including military efforts, genocidal actions and techno-authoritarian ambitions. Greater transparency is essential to strategically decouple from China, ensure our long-term economic prosperity, and protect American workers from China’s destructive policies,” she stressed.
Discrepancies in disclosure standards
Ranking Member Raja Krishnamoorthi of Illinois pointed out that more than 250 Chinese companies, with a total market capitalization of more than $1 trillion, are listed on U.S. stock exchanges. However, these companies do not adhere to the same disclosure standards as US companies, making it challenging for investors to accurately assess risks.
Krishnamoorthi highlighted the CCP’s crackdown on risk disclosure and due diligence, resulting in a situation where “risks cannot be properly assessed.” This discrepancy raises concerns about the transparency and integrity of investments in Chinese companies trading on US stock exchanges.
In conclusion, former SEC Chairman Jay Clayton’s call for greater transparency in the disclosure of major U.S. companies’ exposure to China underscores the need to address potential risks amid growing economic competition and geopolitical tensions between the United States and China. Such revelations could serve as a vital tool for investors and policymakers as they navigate the complex landscape of US-China relations in the business world.