top of page

ASA Opinion: Washington Must End China's Fraud on Our Markets

Allowing China to continue to deceive them undermines America’s national security, economic security, and our values.

By Chris Iacovella

Christopher A. Iacovella is CEO of the American Securities Association.

As China’s great power competition with America intensifies, financial markets have become a frontline battleground. Anyone who denies the Chinese Communist Party is using deception as statecraft in this competition is ignoring reality or a willing participant in its grand strategy. A glaring example of this deception is China’s exploitation of our capital markets. 

China needs access to Western capital to become a dominant world superpower and it found a willing partner in Wall Street. The partnership works like this: First, Wall Street spins a narrative about emerging market returns and the “can’t miss China growth story.” Then, it markets and sells Chinese companies to American investors. After the sale, proceeds are sent to China, it continues to support these companies by putting them in stock index funds, promoting them in the financial media, and lobbying Washington on their behalf. 

But this arrangement only succeeds if U.S. regulators cannot audit the financials of Chinese companies. So, in 2013, the CCP persuaded high-level American officials to agree to give Chinese companies a “free pass” from the Sarbanes-Oxley rules enacted to protect investors in the wake of the Enron and WorldCom frauds. 

Since then, China has used billions of American investor dollars to finance its cyber army, its technology-driven elimination of civil liberties, its human rights abuses, and its destruction of the environment. Wall Street ignores this inconvenient truth in its pursuit of profit. 

Now, the partnership is under fire because the reason the CCP didn’t want U.S. regulators to audit Chinese companies has finally been exposed. 

America’s mom-and-pop investors, labor unions, pension funds, and retirement plans have lost millions investing in fraudulent Chinese companies. From reverse mergers and stock indexes to single-stock listings, this fraud has been deliberate and pervasive. Just this year, Luckin Coffee – the Chinese equivalent of Starbucks – which did an IPO last May, saw its stock drop over 80% as investors learned of fabricated sales and shoddy accounting. Recently, two other Chinese companies – TAL Education and iQiyi – have also been accused of fraud. Over an eight-year period, a pattern of cheating has emerged.  

It begs the question: Is this fraud a normal part of investment risk or an intentional part of China’s larger geopolitical strategy? Facts suggest the latter, leading observers to conclude the CCP executed a purposeful and strategic defrauding of American investors in broad daylight. 

American investors and Washington politicians started asking why Chinese companies continue to access our markets. They also pressured the U.S. Securities and Exchange Commission to do more. But the 2013 agreement lets China assert a “national security privilege” to avoid the rules and regulatory oversight that apply to American companies. So, without support from Congress and the administration to end the agreement, the SEC’s only option was to release a statement essentially telling investors: On China, “Buyer Beware.” 

How quickly things change. 

Earlier this month, the administration recognized China’s statecraft and acted swiftly to stop it. Supported by a bipartisan group in the House and Senate, it ordered a government retirement plan not to invest in a Wall Street index fund holding Chinese companies. The administration pointed to “serious concerns about the reliability of financial information from Chinese companies and the significant risks to investors.” 

Last week, the Senate took action of its own, unanimously passing a bill that requires Chinese companies to comply with U.S. laws. The House is expected to pass this bill soon. The SEC now has overwhelming political support to protect investors and the integrity of our markets. 

To end China’s fraud on our markets, the SEC should: (1) terminate the 2013 agreement; (2) deregister every Chinese company that doesn’t meet the same company-specific disclosure, audit, and reporting standards as U.S. companies; and (3) close the “passive index loophole,” which allows index funds to sell shares of an index holding Chinese companies listed on Chinese stock exchanges that are not subject to any U.S. laws and regulations (i.e. China A-Shares). 

These common-sense bipartisan reforms will protect American investors and level the playing field for American companies to create jobs for American workers. 

America’s capital markets are the deepest and most resilient in the world because investors have confidence the rule of law exists here. Allowing China to continue to deceive them undermines America’s national security, economic security, and our values. 

For a recent poll of Republican and Democratic views towards China, click here.

This op-ed originally appeared at Real Clear Politics. To read it at RCP, click here.

ASA’s regional financial services companies work in communities across the country to create jobs, grow the economy, and increase prosperity for all Americans. The ASA exclusively represents the capital market and private client interests of its members and seeks to promote free market principles making it easier to access financial advice and capital. ASA members help Americans save for retirement, provide Main Street businesses with capital to grow, and advise hardworking Americans how to create and preserve wealth. For the latest updates follow @AmerSecurities and learn more at


bottom of page