WASHINGTON, D.C.— The Committee on the Present Danger: China yesterday offered the Trump administration and the U.S. Congress a dozen practical measures designed to demonstrate our nation’s solidarity with the people of Hong Kong now in imminent peril of having the last vestiges of their freedom and autonomy crushed by the Chinese Communist Party (CCP).
The Committee issued its “Stand with Freedom for Hong Kong” statement as both the executive and legislative branches consider appropriate responses to the impending imposition by the PRC of a National Security Law that would “prohibit any activity that would seriously endanger national security.” As the Committee noted, “In practice, the National Security Law will effectively end the ability of the people of Hong Kong to engage in political discourse since such discourse will inevitably be deemed by Beijing as “endangering national security.”
The Committee’s recommended actions are designed to penalize the Chinese Communist Party in material ways. They will also benefit the people of the United States, while demonstrating solidarity with their freedom-loving friends and allies in Hong Kong and far beyond.
Among the twelve initiatives are eight that would help prevent the further underwriting by U.S. capital markets of the myriad threats the CCP poses to this country and the rest of the Free World. President Trump and his senior subordinates have recently identified such funding as contrary to the national security and to our human right values, as well as a peril to American investors.
1. Secretary of State Mike Pompeo should exercise his authority under the United States and Hong Kong Policy Act of 1992 and the Hong Kong Human Rights and Democracy Act of 2019 by recognizing that Hong Kong is no longer able to exercise a high degree of autonomy on “all matters other than defense and foreign affairs.” Due to the CCP’s intervention and the fact that the people of Hong Kong can as a result no longer enjoy their status quo ante “lifestyle and legal, social, and economic systems,” the Most Favored Nation status accorded Hong Kong must now be revoked. UPDATE: Secretary Pompeo formally certified to Congress that Hong Kong is no longer autonomous this week.
2. The President should direct that sanctions be imposed on Hong Kong and China that would discontinue immediately their use of the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system of financial settlements. The SWIFT system should be reserved for those nations that observe the rule of law. As its crackdown on Hong Kong makes clear, China under the CCP clearly does not.
3. The Trump Administration should immediately serve notice that it will terminate in thirty days the Memorandum of Understanding (MOU) signed in May 2013 between the Public Company Accounting Oversight Board in the United States and the China Securities Regulatory Commission. This little-known MOU allows Chinese corporations to be exempted from U.S. laws such as Sarbanes-Oxley that mandate accepted accounting standards and other auditing requirements. This MOU, executed by the Obama-Biden Administration, has given preferential treatment to Chinese corporations and state-owned enterprises at the expense of the protections U.S. securities statues and regulations are designed to provide to American 3 investors. As such, it has benefited Chinese entities over U.S. companies seeking to raise capital in U.S. markets.
4. Once the MOU is no longer in force, all Chinese corporations currently allowed to raise capital in the U.S. debt and equities markets should be deregistered. Such companies – other than those that are on the Commerce Department’s Entities List or otherwise U.S. government-sanctioned, or that engage in activities that are inimical to the national security or the nation’s human rights values – should remain ineligible for renewed registration unless and until they have conformed to U.S. securities laws, regulations and accounting standards.
5. Chinese corporations (e.g., so called “A-Shares”) that are not registered in U.S. capital markets should no longer be allowed to be included in the portfolios of exchange-traded funds (ETFs) that are registered here. The inclusion of these Chinese companies in ETFs allows them to have the benefits of access to U.S. capital markets without having to comply with U.S. securities laws, regulations and audit standards – to the detriment of American investors and corporations competing for capital. Hence, sanctions should be applied to Hong Kong and Chinese financial institutions that enable such transactions pursuant to the legal agreements known as the Hong Kong-PRC “Stock Connect and Bond Connect”: China Securities Depository and Clearing Corporation and Hong Kong Securities Clearing Corporation (including all three of its separate institutions: China Central Depository & Clearing Corporation, Shanghai Clearing House Corporation, Hong Kong Interbank Clearing Limited).
6. Sanctions should be applied to bar the purchase and sale of any sovereign debt instruments backed by the full faith and credit of the People’s Republic of China (including but not limited to state-owned enterprises).
7. CCP state-owned and -affiliated banks do not conform to U.S. securities laws, regulations and audit standards or to U.S. statutes governing banking practices, exposing American investors to serious undisclosed material risk and fraud. They should not be traded in U.S. capital markets, either through active or passive investment vehicles.
8. The US Department of Labor should refine its definition of the “prudent man standard” as defined in the Employee Retirement Income Security Act (ERISA) of 1974. Large U.S. pension funds are subject to ERISA, which imposes higher fiduciary standards on the plans’ trustees, sponsors and investment managers – namely, that these individuals need to abide by the “prudent person” standard. China’s refusal to comply with PCAOB audit requirements violates such a standard. Revised Labor Department guidelines should preclude U.S. pension funds from holding CCP corporations’ stocks in portfolio.
In addition, the Committee recommends initiatives designed to: break down the so-called Great Firewall that denies the people of China access to information not approved by their totalitarian regime; punish the perpetrators of human rights violations; impede “organ genocide,” Beijing’s industrial-grade, transplanting of organs involuntarily extracted from religious and ethnic minorities, political prisoners and others; and help defend the people of Taiwan – who are clearly next in Beijing’s cross-hairs.
9. Priority should be given to penetrating and defeating the Chinese Communist Party’s efforts to deny the Chinese people access to information not subject to state censorship or control. The Party’s so-called “Great Firewall” is an instrument the CCP uses to enhance its efforts to propagandize its citizens, including by fostering animosity towards the United States that can contribute to future hostilities.
10. The full sanctions available under the Global Magnitsky Act should be imposed to penalize individuals and entities responsible for the CCP’s oppression of the people 5 of Hong Kong. In particular, the CCP should be put on notice that it will be held to account for the whereabouts and welfare of protestors in Hong Kong forcibly removed by CCP-backed authorities while exercising a legitimate right of protest. The United States government must send a firm signal that it will not sit idly by should the atrocities of Tiananmen Square be repeated.
11. A national effort should be made to identify and act to impede the CCP’s practice of organ genocide – the international marketing and implantation of organs involuntarily and often murderously removed from members of religious and ethnic minorities, political prisoners and others.
12. All practicable steps should be taken to protect the people of Taiwan who are likely to be the next targets of CCP aggression.
The Committee’s statement concluded: “Given what appears to have been an unprecedented and devastating viral attack deliberately, consciously and malevolently unleashed on the United States, our people, and our way of life by the Chinese Communist Party, its true character and ambitions can no longer be ignored. The Committee on the Present Danger: China commends the Trump administration for standing up to the CCP and calls on it and the Congress to stand with the people of Hong Kong and other U.S. allies by adopting the foregoing measures immediately.”