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House Select Committee on the CCP – Risky Business: Growing Peril for American Companies in China

House Select Committee on the Chinese Communist Party

Risky Business: Growing Peril for American Companies in China

Thursday, July 13, 2023

 

Topline

  • Democrats asked panelists about the state of the Chinese economy and the accuracy of their data.
  • Republicans voiced concerns that involvement of American companies with China hurts the American economy and financial system.

 

Witnesses

  • Ms. Piper Lounsbury, Chief Research and Development Officer, Strategy Risks
  • Mr. Shehzad Qazi, COO and Managing Director, China Beige Book International
  • Mr. Desmond Shum, Author of Red Roulette: An Insider’s Story of Wealth, Power, Corruption and Vengeance in Today’s China

Opening Statements

Committee Chairman Mike Gallagher (R-Wis.)

In his opening statement, Gallagher discussed the differences in US and Chinese business strategies. He noted that China is withholding information from clients on companies and suggested that there is no such thing as a private company in China. He closed by stating that it’s time for American corporate executives to take off the golden blindfolds and stare with clear eyes on doing business with China.

 

Committee Ranking Member Raja Krishnamoorthi (D-Ill.)

In his opening statement, Krishnamoorthi noted that for more than 50 years, the US has welcomed the CCP into the global economy. He noted that the US was promised fair access to a Chinese market that would transform American companies and provide new opportunities for American workers. He said that the CCP has used IP theft to steal our technology and become the world’s largest auto manufacturer. He closed by saying it’s time to invest more in America.

 

Testimony

Piper Lounsbury, Chief Research and Development Officer, Strategy Risks

In her testimony, Lounsbury suggested that the CCP’s goals are to replace American firms and businesses while using them in the near term. She noted that American CEOs are increasingly concerned about the risks from doing business in China and noted that the risks are intensifying. Lounsbury also noted that American information is going to China, but Chinese information is not coming to the US. She closed by recommending that Congress examines how American biometric information is secured.

Shehzad Qazi, COO and Managing Director, China Beige Book International

In his testimony, Qazi discussed how Chinese data is widely unreliable and unavailable. He noted that the censorship of economic data has risen, and that China and the Chinese economy are more of a blackhole today than since China joined the WTO in 2001. He said it’s impossible for outsiders to know the economic conditions in China and that banks are taking part in self-censorship to please the CCP. He closed by noting that Wall Street does not represent China honestly which ends up hurting American investors.

Desmond Shum, Author

In his testimony, Shum noted that in China there is no such thing as a level playing field. He said that for those working in China, you either prosper when working in favor of China, or you perish. He noted how the CCP kidnapped his wife when his business interests were not in favor of the CCP and said that political power trumps everything in China. Shum closed by asking American policymakers to decide on what’s best for Americans, and not allow American corporate leaders to do so.

Question & Answer

Data and Censorship

Krishnamoorthi asked if American investors are at great risk due to false information from China. Qazi said they absolutely are at great risk and that China is an information desert.

 

Rep. Blaine Luetkemeyer (R-Mo.) asked if there are any ways for the US to force Chinese companies to provide real information. Qazi noted that the SEC should have more authority granted to press for more information and data from Chinese companies.

 

Rep. Dan Newhouse (R-Wash.) asked if American intellectual property can be used against US firms and companies. Shum said intellectual property can be used against US firms and companies.

 

Rep. Dusty Johnson (R-S.D.) asked if Americans can trust any of the data indexes that come from China. Qazi noted that not a single data index produced by China should be trusted.

 

Chinese Involvement

Krishnamoorthi asked Shum why investments in Hong Kong decreased after the CCP got involved. Shum said that people do not trust the CCP so they are investing their money where there is no CCP involvement.

 

Rep. Jake Auchincloss (D-Mass.) asked if Chinese citizens continue to be upset with the CCP what might happen. Shum said that nothing will happen since Xi has spent the last decade purposefully stopping any resistance from Chinese citizens.

 

Rep. Mikie Sherrill (D-N.J.) asked how pervasive the CCDI is in the Chinese economy. Shum said the CCDI sees all transactions made by companies in China and that they are very pervasive.

Rep. John Moolenaar (R-Mich.) asked if there is any separation from the CCP and the PLA. Lounsbury said there is no separation.

 

Rep. Haley Stevens (D-Mich.) asked if the motives of the CCP were political or economic. Qazi said that fundamentally the CCP’s motives are political.

 

Economy and Financial System

Gallagher asked if the US economy and financial system is put at risk if CCP data is untrustworthy. Qazi said it absolutely can hurt the US economy and financial system.

 

Rep. Seth Moulton (D-Mass.) asked about China’s current debt. Qazi said there is no information put out by the Chinese government, however, if he were to estimate, it would be hundreds and hundreds of billions of dollars.

 

Moulton then asked Qazi what unemployment looks like in China. Qazi said there is about 26% of young Chinese citizens that are unemployed.

 

Rep. Andy Barr (R-Ky.) asked Lounsbury to describe the differences in a shareholder that’s invested in a Chinese VIE structure versus a regular structure. Lounsbury said that VIE structures are very hard to track and trace. Barr then asked if Congress should ban VIEs, but no panelist could give an answer.

 

Rep. Kathy Castor (D-Fla.) asked if the CHIPS Act and Inflation Reduction Act are working and helping our economy. Lounsbury said they are a great first step, but more needs to be done to help the US economy.

 

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.