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Memo 06.15.2020

China is on the Ballot in 2020

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American voters will decide if the PRC wins.

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In early May, President Donald Trump ordered a federal retirement fund to scrap its plans to shift several billion dollars’ worth of U.S. government employee savings into Chinese stocks. The administration is now planning a broader review of China’s unfair and potentially dangerous usage of American capital markets. This is about far more than mundane matters of bureaucracy and asset allocation. It epitomizes the existential battle facing America.

The Status Quo

Our public servants will now no longer be underwriting military contractors that support the Communist Party of China’s (CPC) People’s Liberation Army—an army that has threatened U.S. servicemen and engaged in espionage against U.S. civilians. Nor will we be funding “enterprises” indicted for violating U.S. sanctions in conducting business with enemies like CPC customer Iran and satrap North Korea; or technology companies that produce the surveillance equipment used to run the CPC’s modern-day gulags and supply other police states. These are all welcome developments.

But the fact that these travesties would have transpired had the Trump administration not intervened is a sobering truth with implications that transcend capital markets. It touches on the long-term competition into which America has finally entered with the People’s Republic of China (PRC). Near-term, the 2020 election is critical to sustaining this competition.

Following the Cold War, the stated rationale for U.S.-PRC relations was one of economic self-interest and idealism: Economic liberalization would lead to political and cultural liberalization. Relatedly, the story went, an integrated and prosperous China would be a peaceful and stable one.

For decades, Joe Biden has been one of the most senior proponents of this view. During the height of the 2000 debate that resulted in the granting of permanent normal trade relations (PNTR) to China, putting it on a glidepath to World Trade Organization accession that would accelerate its drive toward superpower status, Biden asserted that PRC “prosperity…has put China on a path toward ever-greater political and economic freedom.”

This view persisted in the administration Biden served. It was the Obama Administration—during much of which then-Vice President Biden managed the “China portfolio,” explicitly engaging the then-general secretary-in-waiting Xi Jinping—that was responsible for the plan which would have seen U.S. government employees fund their foes. Every member of the Federal Retirement Thrift Investment Board (FRTIB) responsible for the 2017 decision to tilt its Thrift Savings Plan’s (TSP) international fund toward Chinese equities, was an Obama appointee. They pressed ahead with the plan in spite of withering bipartisan criticism.

Although modest in terms of dollars spent, this decision was symbolically massive. It was of a piece with larger changes the Obama Administration made in granting China the privilege of access to U.S. capital markets in spite of its malevolence.

In 2013, China faced the prospect of seeing its companies deregistered from U.S. exchanges on a massive scale due to their unique non-compliance with basic standards of transparency and accountability. The Obama Administration gave China a lifeline in the way of a memorandum of understanding (MOU), inked with its regulatory authorities, purportedly intended to make progress toward closing these gaps.

John Solomon reports that the two sides consummated this agreement following the pleas of “Chinese leaders…for improved access to American capital markets in multiple meetings with then-Vice President Joe Biden.” The document was toothless. The results of appeasement were predictable.

By February 2019, according to the U.S.-China Economic and Security Review Commission (USCC), some 156 Chinese companies had listed on major U.S. exchanges, with a then-total market capitalization of $1.2 trillion. Chinese equities garnered ever-greater weightings in various indices, apparently at times under pressure from China, including again the index which the FRTIB’s TSP was slated to mirror until the Trump administration interceded.

A Clear Choice

Today, seven years after the MOU went into effect, Chinese companies continue to get de facto preferential treatment in U.S. capital markets by skirting auditing and reporting requirements. Investors have literally paid the price by funding some spectacularly fraudulent Chinese companies, such as Luckin Coffee.

To rectify the Obama Administration’s folly, Senator John Kennedy (R-LA) introduced legislation, which the Senate recently passed unanimously, that would force Chinese companies to comply with our securities rules and regulations or risk de-listing from our exchanges. Congress is now being joined by the Trump Administration, which again is undertaking its own review.

Trump’s related directive flies in the face of not only Obama Administration policy but the historical U.S.-PRC relationship. That any American dollars might support Chinese commercial activities antithetical to America’s national interest—including backing entities, whether “private” or state-owned, that answer to the adversarial ruling CPC and serve its military-civil fusion strategy—is a consequence of the bipartisan political establishment’s long-time policy of U.S.-PRC integration and accommodation. That is, it reflects a policy of “engagement,” a euphemism for willful blindness in aiding, abetting, and enabling an ever-more dangerous and hostile adversary.

America granted China entry into the world economic architecture it largely built and maintained. China responded to our benevolence not by conforming to the “liberal international order” but by taking advantage of it—lying, cheating, stealing, and increasingly coercing in its quest for dominance. As American corporations kowtow to China, and American media propagates CPC narratives, it would seem the globalist elites who encouraged this policy had it backwards. We have not changed China. China has changed us.

Wall Street was the leading edge of the globalist business community’s decades-long lobby to permit a China trade that promised great fortunes in access to a market of more than one billion Chinese citizens, and a labor pool unencumbered by American standards. For at least two decades, Beijing has courted senior American financial executives to press U.S. presidential administrations for greater trade liberalization, while said executives’ banks have received massive underwriting and advisory fees relating to Chinese commerce.

As the late Senator Fred Thompson quipped during the USCC’s inaugural hearing in June 2001, “there have not been very many people coming to Congress and lobbying on behalf of being careful in terms of the national security implications of U.S. engagement with China.” Nor were there many in Congress worried about the matter. This included Sen. Thompson’s longtime colleague, Joe Biden.

A History of Squish

Biden arrived in Washington, D.C. a year after Nixon went to China. He sat on the Senate Foreign Relations Committee for three decades, serving as chair or ranking member from 1997 onwards. If any political figure outside of the Oval Office could have helped change the course of U.S.-China relations, it would have been the senator from Delaware. Yet during his long career, covering practically the entire arc of the U.S.-PRC relationship, there is virtually zero evidence that he ever opposed the effort to propel China to prominence. Today, as a direct consequence of this neglect, China could sneeze and the world would end up paralyzed.

Indeed, Biden has been a reliable proponent of not just PRC integration, but ascendance. Reminiscing about his participation in a 1979 delegation to visit Deng Xiaoping months after the U.S. and PRC had normalized relations, then-V.P. Biden stated in May 2011 at the U.S.-China Strategic & Economic Dialogue that “as a young member of a Foreign Relations Committee, I wrote and I said and I believed then what I believe now: that a rising China is a positive, positive development, not only for China but for America and the world writ large.”

He has never renounced this statement, and his words and actions—or lack thereof—are a testament to his belief in it. At critical turns in the U.S.-PRC relationship, Biden never stood athwart History yelling “stop.” One will search in vain for impassioned statements from Biden calling for abandoning the U.S.-PRC relationship after Tiananmen Square. Ditto for challenging the Clinton administration’s flip-flop in delinking China’s most-favored-nation status from human rights.

The same goes for the PNTR trade talks. The PNTR debate was peak Biden—he was spectacularly wrong in critical dimensions, and his arguments tracked perfectly with the globalists of Wall Street and Big Business.

In addition to parroting the mantra that economic liberalization would lead to political liberalization, Biden claimed the CPC had “been forced to acknowledge the failure of communism,” and that he did not foresee “the collapse of the American manufacturing economy, as China…suddenly becomes our major economic competitor.” Biden supporters may point to his stale expressions of concern regarding Chinese weapons proliferation as evincing a modicum of sobriety. But these concerns never led him to advocate a pause, let alone a reconsideration, of our agreement to underwrite China’s arsenal.

As for Biden’s time in the Obama Administration, beyond maintaining the “engagement” status quo, President Obama’s tenure consisted of a feeble “pivot” to, or “rebalance” with respect to, Asia—and a pusillanimous response to Chinese aggression. From the catastrophic Office of Personnel Management hack, to the liquidation of Central Intelligence Agency assets in China, to militarization of the South China Sea, Obama was spectacularly soft in the face of China’s provocations.

If V.P. Biden wished to shake us out of our China stupor, he failed to do so. This is to say nothing of the at least apparent corruption in Biden’s son Hunter’s dealings with China.

Biden/China 2020

President Donald Trump, by contrast, has shattered the integrationist and accommodationist status quo. He has argued, by way of his administration’s National Security Strategy, against the idea that “engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners.” This is the very notion of which Joe Biden has been a longtime perpetuator.

Where Biden dithered, Trump has acted. One Wall Street Journal analysis noted that “the China policies of the Trump administration’s 23 cabinet and cabinet-level officials reveal…that nearly all of them have adopted adversarial policies toward China or curtailed cooperation with the country.”

This is why Biden’s flippant May 2019 comment about China not being “competition for us,” which he was at pains to walk back, cannot be excused.

The Trump administration is now signaling its willingness to further upset Wall Street by wading into the area of Chinese access to our capital markets. Biden, meanwhile, is the vessel for the globalist’s hopes and dreams. Following the collapse of the most unabashedly pro-PRC engagement candidate in Michael Bloomberg, Biden became the great hope of Wall Street. While Biden seeks to woo the progressives that increasingly dominate his party, Wall Street is undeterred. Per OpenSecrets, the Securities & Investment industry has lavished $28.9 million on the Biden campaign, compared to only $6.3 million for the Trump campaign. Money talks.

At stake is whether, and to what extent, we will confront an adversarial, ascendant, aggressive China whose aggression has only been made more apparent during the Chinese coronavirus crisis—a China harboring hegemonic ambitions that it has never been better positioned to pursue.

That Biden’s party appears more focused on policing the words we use to describe the Chinese coronavirus than holding the CPC accountable for it further indicates that the risk of a backslide is real. Every vote for Biden will be to the inestimable benefit of the CPC and the globalist cheerleaders who desire a return to the status quo.

These cheerleaders, it should be noted, hypocritically sing progressive paeans, claiming fealty to environmental, social, and corporate governance (ESG) principles while at the same time seeking ever-greater commercial relations with a Communist China that violates such principles. Biden personifies this hypocrisy as he caters to both progressives and globalist elites.

It falls to American voters, nine in ten of whom view China’s power and influence as a threat, to decide whether it is tolerable to risk a reprise of the “engagement” status quo from Nixon-Obama that catapulted China to its present position, imperiling American life, limb, and prosperity.

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