Wall Street Execs Acknowledge Urgency to Limit US Capital Flow to China: Gallagher

Wall Street Leaders Express Willingness to Pull Back Investment from China

According to House China Committee Chairman Rep. Mike Gallagher (R-Wis.), Wall ‍Street leaders ​have shown a general willingness to reduce investment in China. During a tabletop exercise in New York, Mr. Gallagher and seven other committee members engaged with top Wall Street figures to explore the implications of an economic competition with the Chinese Communist Party (CCP) over Taiwan.

Mr. Gallagher was surprised to⁣ find that even⁣ executives who are ⁣typically​ more ⁢lenient towards China ⁢recognized the ⁤need for restrictions on US ⁣capital flowing into certain areas of China.‍ He stated, “So nobody was pushing back against the principle. It’s just a question of how you get it right—like ‌what’s ​the best way to regulate it.” This recognition among Wall Street leaders is encouraging.

Scope of Restrictions

President Joe Biden signed an executive order in August to regulate outbound investment tied to China, specifically in sensitive technologies such as artificial intelligence, quantum technology, and semiconductors. However, ‍Mr. Gallagher believes that the​ scope of these restrictions can be much broader. ‍He suggests including “anything associated with the [China’s] military-industrial complex,” such ‌as space technologies, hypersonics, and biotechnology.

Mr. Gallagher is confident that⁤ legislation can be enacted to go beyond the Biden executive order and endure beyond the ‌current administration. He emphasized‍ the ⁢importance of not funding the CCP’s military ambitions, as it increases the ⁢likelihood of conflict in the Indo-Pacific region.

Potential Consequences

Mr. Gallagher warned that if China were to​ invade Taiwan, the impact on U.S. financial systems would be ⁢catastrophic. He stated, “The entire U.S. economy and banking system would be imperiled. Equity markets would drop precipitously as global shipping lanes closed, shipping​ insurance premiums skyrocketed, supply chains broke down, and the specter ⁣of global ⁣conflict grew. ⁣Americans would see their pensions shrink and their bank accounts hemorrhage cash.”

However, Mr. Gallagher’s focus extends beyond the worst-case scenario of a Taiwan invasion. He aims to engage with Wall Street executives to address the increasingly hostile business climate in ⁢China.‍ The risks associated with doing business in China have risen significantly, with routine commercial activities being labeled as “state secrets”‌ under a new anti-espionage law. U.S. consulting firms have been raided, and bilateral⁤ tensions with the‍ United States continue to escalate.

Waking Up to the Risks

Mr. Gallagher believes that people‌ are starting to recognize the⁢ risks associated with investing in China. U.S. hedge funds, including Coatue, D1 Capital, and⁣ Tiger Global, ‍have reduced their exposure to the Chinese market. ​A poll of Fortune 500 CEOs conducted in May revealed that 41 percent are decreasing investment in China due to ‍political and reputational risks.

BlackRock, the world’s first global asset manager to establish a wholly owned onshore mutual fund in China, recently closed a China-focused fund following a probe from the China committee over its investment ties with blacklisted firms.

In his testimony to the Select Committee on the CCP, former chairman of the U.S. securities regulator Jay Clayton ⁤proposed that companies⁤ disclose their China risk if‌ they meet‌ certain criteria, such⁤ as ⁣having a market‍ capitalization exceeding $50 billion​ or a China-based cost ‌or revenue of over $10 billion ‌annually.

Mr. Gallagher concludes that taking on a genocidal, communist regime as a business partner is not a recipe for success but rather a source of systemic risk. He ⁣believes that selective decoupling from​ China is inevitable and that more​ individuals and organizations ⁣are waking up to the‍ risks involved.