U.S. Defense Bill Seeks to Counter China

Beijing’s increased military activity in South China Sea, pursuit of U.S. technology among issues
By Kate O’Keeffe and Siobhan Hughes

Republican Rep. Robert Pittenger of North Carolina has helped lead an effort to tighten U.S. national-security reviews of Chinese business deals. 

Congress is preparing to enact a defense-policy bill that some lawmakers say is tougher on China than any in history, as a bipartisan movement to confront Beijing gathers steam.
The measure, an annual policy bill that will authorize $716 billion in total defense spending for the coming fiscal year, seeks to counter a range of Chinese government policies, including increased military activity in the South China Sea, the pursuit of cutting-edge U.S. technology and the spread of Communist Party propaganda at American institutions.
The House of Representatives approved the legislation last week, and President Trump is expected to sign the bill into law after the Senate approves it as soon as Wednesday.
This year’s National Defense Authorization Act is a reflection of a growing bipartisan consensus in Congress and among national-security officials that the world is entering a new era of great power rivalries in which the U.S. must do more to compete with China and Russia.
“The central challenge to U.S. prosperity and security is the reemergence of long-term, strategic competition,” according to an unclassified summary of the U.S.’s 2018 National Defense Strategy. “China is leveraging military modernization, influence operations, and predatory economics to coerce neighboring countries to reorder the Indo-Pacific region to their advantage,” the document says.
The Chinese Embassy didn’t return a request for comment.
Some of the defense bill’s most notable provisions concern Chinese economic activity. 

The legislation seeks to both tighten U.S. national-security reviews of Chinese deals under the Committee on Foreign investment in the U.S. and to revamp export controls governing which U.S. technologies can be sent abroad.
Though the Cfius provisions, spearheaded by Sen. John Cornyn (R., Texas) and Rep. Robert Pittenger (R., N.C.), and the export rules, led by Rep. Ed Royce (R., Ca.), are expected to affect a wide array of American businesses, many supported the measures because of a growing concern over Chinese policies.
“Three years ago if you talked about doing things against China, the business community would push back,” said James Lewis, senior vice president at the Center for Strategic and International Studies in Washington, D.C. 

“They don’t push back anymore.”
“We have multiple nations out there that are threatening our national security from an economic-espionage perspective, and none of them equal China,” said Bill Evanina, Director of the National Counterintelligence and Security Center, at an event last week.
The defense bill also requires an annual report on China to include information on efforts by the Chinese government to influence U.S. “media, cultural institutions, business, and academic and policy communities” to fall in line with its security strategy.
Another provision limits Department of Defense funds for Chinese language programs at U.S. universities that host Confucius Institutes. 

These centers, funded by the Chinese government, have been criticized by Republicans—including Sens. Marco Rubio of Florida, Tom Cotton of Arkansas and Ted Cruz of Texas, as well as Rep. Joe Wilson of South Carolina—for peddling propaganda.
The bill also contains provisions to bolster defense ties with India and Taiwan, a self-ruled island that China claims as its own. 

And it bans China’s participation in Rim of the Pacific naval exercises—which involve 26 nations in a display of international military cooperation—until it stops militarizing islands in the South China Sea.
“It’s a signal to our allies and partners in the region—particularly Australia, Japan and Taiwan—that China’s activities in the South China Sea are not accepted as normal,” said Rachael Burton, deputy director at the Project 2049 Institute, a Virginia-based think tank.
One area in which a bipartisan group of lawmakers thought the defense bill fell short was with respect to Chinese telecommunications giant ZTE Corp. 

The Commerce Department in April banned U.S. companies from selling to ZTE for failing to honor an earlier U.S. agreement to resolve its sanctions-busting sales to North Korea and Iran. 

Because ZTE depends on U.S. suppliers, the ban was effectively a death knell.
But, in a surprise tweet on May 13, Mr. Trump said he and Chinese dictator Xi Jinping were “working together” to find a way to save ZTE.
The Commerce Department then struck a new deal with ZTE on June 7 that required the Chinese firm to put $400 million into an escrow account, pay a $1 billion fine, replace its board of directors and senior leadership, and fund a team of U.S. compliance officers to monitor the company for 10 years in exchange for being allowed to resume business with U.S. suppliers.
Dissatisfied with Mr. Trump’s deal, the Senate on June 18 voted to reinstate the initial Commerce penalty on ZTE by wrapping the measure into the defense bill. 

But Senate and House negotiators removed the language from the final text. 

The company didn’t return a request for comment.
Mr. Rubio has in recent tweets blasted the outcome as a “cave” by congressional negotiators.
“We got played by China again,” he said in a July 24 tweet. 

“This can’t continue.”

Lawmakers Take Aim at Chinese Tech Firms

Bipartisan groups introduce amendment to scuttle Trump’s deal with ZTE, scrutinize Huawei’s ties to Google
By Siobhan Hughes, Kate O’Keeffe and John D. McKinnon

The deal that the Trump administration announced Thursday with China’s ZTE Corp. was immediately opposed by a bipartisan group of U.S. lawmakers as a threat to national security. 

WASHINGTON—Lawmakers in Congress lost a battle over ZTE Corp. when the Trump administration announced a deal Thursday to resuscitate the Chinese telecommunications giant, but they made it clear their war against Chinese technology companies is far from over.
Hours after the Commerce Department announced a deal that would prevent ZTE’s collapse by allowing it to resume buying components from U.S. suppliers, a bipartisan group of lawmakers introduced an amendment to a must-pass bill in an effort to undo the deal.
Members of Congress have also begun scrutinizing Google’s relationship with China’s Huawei Technologies Co. 

A group of lawmakers that includes some of the biggest critics of Huawei—Sens. Tom Cotton (R., Ark.) and Marco Rubio (R., Fla.) and Reps. Mike Conaway (R., Texas) and Robert Pittenger (R., N.C.)—is looking at Google’s operating-system partnership with Huawei.
Sen. Mark Warner (D.,Va.) issued his own open letter early Thursday to Google parent Alphabet Inc. and Twitter Inc., asking for information about any data-sharing agreements between the two companies and Chinese vendors. 

He also asked for information from Alphabet about separate partnerships with Chinese phone maker Xiaomi Corp. and Chinese tech giant Tencent Holdings Ltd.
The effort to reverse the ZTE deal marks the second time this week that the Republican-led Senate has threatened direct confrontation with Donald Trump over a signature policy issue.
A group of senators is also seeking to undo tariffs that Trump recently imposed on aluminum and steel imports from Canada, the European and Mexico. 

They have taken a dispute that was a war of words into the more serious realm of legislation that could handcuff the president.
Trump has made trade, and particularly fixing what he views as an unfair global trading system, a centerpiece of his agenda. 

That has entailed confronting both China and close allies, and threatening tariffs on a range of goods. When Trump last month said he was planning to reverse the penalties on ZTE, as the administration was pushing Beijing to commit to buy more U.S. exports, lawmakers from both parties accused him of conflating trade and national-security issues. 

The administration denies that.
While some Republicans have shied away from confronting Trump over his trade agenda, they appeared more prepared on Thursday to challenge the deal with ZTE, where national- security issues are more clear-cut. 

U.S. officials have warned for years that the telecom firm’s equipment, along with equipment made by rival Huawei, could be used to spy on Americans.
In mid-April, the U.S. banned exports to ZTE as punishment for the Chinese company breaking the terms of a settlement to resolve its sanctions-busting sales to North Korea and Iran. 

The penalty, which the Commerce Department said Thursday it would now lift as part of a new deal, amounted to a death knell for ZTE.
Backers of the ZTE amendment introduced Thursday, led by Mr. Cotton along with Senate Minority Leader Chuck Schumer (D., N.Y.) and Sen. Chris Van Hollen (D., Md.), are hoping to attach it to the National Defense Authorization Act, which could get a vote as soon as next week. 

Senate Majority Leader Mitch McConnell (R., Ky.) hasn’t said whether he expects the amendment to go to a vote, or whether it could make it into the package by other means.
Sen. Lindsey Graham (R., S.C.), who urged his colleagues to back off their effort to void Trump’s aluminum and steel tariffs after meeting with the president this week, said he wasn’t yet comfortable with the ZTE deal.
“I don’t know,” Mr. Graham said. 

“I want to give the president as much latitude as we can to negotiate with China and get a good deal with North Korea. Our intelligence community is very concerned. I want to know from them: do these changes alleviate their concerns?” he said.
The Commerce Department agreement announced Thursday requires ZTE to pay a $1 billion fine and allow U.S. enforcement officers inside the Chinese company to monitor its actions. 

In exchange, it allows ZTE to resume buying components from U.S. suppliers that it needs to make smartphones and build telecoms networks.
“I’m not comfortable yet,” said Sen. Roy Blunt (R., Mo.), a member of the Senate Intelligence Committee who has declined to back an effort to subject Trump’s metals tariffs to congressional approval. 

“I want to know more about the U.S. presence inside the company and why we should believe that that creates a level of assurance that we need to have about their capacity to do things that we wouldn’t want to have them do.”
The amendment introduced by lawmakers on Thursday would also prohibit U.S. government agencies from purchasing or leasing telecom equipment or services from ZTE or Huawei, and ban the U.S. from subsidizing those firms with grants or loans.
A ZTE spokeswoman didn’t immediately respond to a request for comment.
The fight over ZTE between Trump administration officials and China hawks in Congress began last month. 

Just weeks after the Commerce Department had banned U.S. companies from selling to ZTE, Trump suggested he was considering reversing the penalty. 

He tweeted May 13 that he and Chinese dictator Xi Jinping were “working together to give massive Chinese phone company, ZTE, a way to get back into business, fast.” 

He added: “Too many jobs in China lost. Commerce Department has been instructed to get it done!”

The tweet incensed many members of Congress, as well as intelligence and military officials, who moved swiftly to denounce any prospect of a reprieve through a series of legislative actions and an aggressive publicity campaign.
The debate over ZTE in Congress likely will have ramifications for the fall elections, as well as for trade policy. 

Polling has suggested that voters remain wary of China, a fear that Trump is tapping with his get-tough rhetoric.
The Wall Street Journal/NBC poll in April found that most U.S. voters view China as an adversary rather than an ally. 

Fear of China is especially intense among Trump supporters. 

But it is also substantial among older voters, whites and Republicans in general.
In private meetings with GOP senators this week, Trump argued in favor of reaching a deal with ZTE, which his administration struck after the president personally negotiated with Xi. 

The White House has also argued that if ZTE goes out of business, it will simply be absorbed by Huawei, lawmakers said, leaving the U.S. without protections included in the deal, such as the installation of Chinese-speaking American enforcement officers inside the company to monitor its actions.
That carried little weight with Mr. Rubio, who co-sponsored Thursday’s amendment and who has been among the most vocal members of Congress on the issue. 

“If Huawei is an even bigger problem than ZTE, we shouldn’t be selling them semiconductors either,” he said.
Lawmakers said the administration’s handling of the ZTE issue was evidence of dysfunctional trade policies. 

In a speech on the Senate floor Thursday, Mr. Schumer said: “Trump has directed far too much of the administration’s energies on trade toward punishing our allies, like Canada and Europe, instead of focusing on the real menace, the No. 1 menace: China.” 

Mr. Schumer was referencing Trump’s decision last week to impose tariffs on America’s closest allies.
While the ZTE drama unfolded Thursday, lawmakers’ ramped-up scrutiny of Google’s deal with Huawei represented another front in the offensive against Chinese tech companies: data sharing. 

Trump administration officials and lawmakers had earlier largely limited their actions to trying to reduce ZTE’s and Huawei’s U.S. footprints. 

Now, members of Congress appear more willing to examine partnerships between U.S. firms and the two companies that have nothing to do with U.S. sales.
A representative for Huawei wasn’t immediately available to comment.
A Google spokesman said in a statement the company looks forward to answering lawmakers’ questions, adding: “We do not provide special access to Google user data as part of these agreements, and our agreements include privacy and security protections for user data.”
Derek Scissors, a China scholar at American Enterprise Institute, said the ZTE deal makes little sense if U.S. policy goals are to both keep Chinese firms out of the U.S. telecom network and keep them from getting access to Americans’ personal data.
“If we don’t trust Chinese telecommunications firms, why are we helping them become more capable?” he said.

Chinese Peril

China's takeover of the Chicago Stock Exchange would have been a very bad thing
By Gordon G. Chang

Late Thursday, the Securities and Exchange Commission issued a notice announcing it did not approve the proposed acquisition of the 136-year-old Chicago Stock Exchange by a Chinese-led consortium.
The Chicago exchange, better known as CHX, is not happy, saying in a statement the SEC “unfairly” disadvantaged “our company and shareholders.”
The stakes for the rest of America are high. 

As Rep. Robert Pittenger, R-N.C., pointed out before the SEC turned down the deal, a successful takeover would be “the first time a Chinese-owned, state-influenced, firm maintained direct access into the $22 trillion U.S. equity marketplace.”
At the moment at least, Chinese plans are on hold. 

And that, for many reasons, is a good development.
In December 2016, CHX filed a proposed rule change, pursuant to the Securities Exchange Act of 1934, that would allow a group, led by Chongqing Casin Enterprise Group, to acquire the exchange.
The SEC on Thursday blocked the $25 million takeover due to concerns about the ability of the Chicago exchange “to ensure ongoing compliance” with ownership and voting limitations. 

Moreover, the Commission questioned whether “the proposed ownership structure” would allow it “to exercise sufficient oversight” of the exchange.
It’s not hard to see why the SEC reached that conclusion. 

As the Commission’s staff sought more and more information about the deal, the clearer it became that the ties among the acquirers were murky. 

“The information made available to the Commission was insufficient to verify the ultimate source of the funds certain of the proposed upstream owners were using to fund their part of the transaction,” Thursday’s SEC notice states.
The Commission also noted that there were “potential undisclosed connections between purportedly unrelated members of the investor consortium.”
These connections are important because, as the Commission pointed out, “upstream owners” might be able to “exercise undue influence over the Exchange.”
To facilitate approval, three members of the acquisition group dropped out, according to an announcement last November. 

After the change, the remaining Chinese participant, a Casin-owned shell company, held a 29 percent interest in the consortium. 

Said John Kerin, CHX’s CEO, “We are confident this will address any concerns the Commission may have had about the ownership composition.”
Yet the reduction in Chinese ownership did not help. 

The fact that the acquirers did not answer previous questions from the Commission’s staff left the SEC unable to resolve matters relevant to the structure of the proposed acquisition after the trio exited the deal.
Theoretically, the Casin investment group could go back to restructure the deal to get the SEC to give its nod, yet the group’s deceptive responses to the Commission mean that, as a practical matter, it is unlikely to ever win approval.
It’s bad enough that the acquirers apparently tried to mislead the SEC. 

What is even more disturbing, as Fraser Howie, a prominent Asia-based investment analyst, told Fox News, is that Casin’s bid was “odd” to begin with.
For one thing, CHX was not a particularly attractive investment. 

Casin argued it could bring Chinese companies to market in Chicago, yet it’s hard to see how it could do so. 

The identity of owners of an exchange is almost never a factor for companies going public. 

As Andrew Collier of Orient Capital Research in Hong Kong told Fox News, exchange ownership would be relevant only “if the listing company thinks that doing a favor to the owners would pay off.”
As Collier points out, companies selling shares care most about liquidity and valuation. 

The tiny CHX, which handles about 0.5 percent of daily stock trading volume in the U.S, lacks liquidity and would continue to do so.
In the meantime, what happens when another Chinese group comes along to buy CHX? 

The SEC, basing its decision on technical grounds, did not have to consider the broader arguments about Chinese involvement in the U.S. financial system.
Such involvement is not in America’s interests. 

“Why can Chinese companies come and buy U.S. exchanges yet U.S. companies can neither start nor buy Chinese exchanges?” Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise,” asks. 

`“Reciprocity should be our new mantra.”
There are also concerns about China undermining the U.S. economy. 

“Because any Chinese entity permitted by Beijing to play in foreign markets is effectively controlled by the Chinese government, all such deals, no matter how small or marginal the takeover target seems, enable that government, and the state-dominated Chinese system, to grow its footprint in the U.S. economy,” Alan Tonelson, a Washington, D.C.-based trade expert who blogs at RealityChek, told me. 

That weakens our economy’s “basic free-market structure.”
No Chinese company could demonstrate independence these days due to Beijing’s tightening control, so allowing access to the America’s financial backbone looks exceedingly dangerous. 

Michael Wessel, a long-time commissioner of the U.S.-China Economic and Security Review Commission, tells Fox News that running an American exchange would give China inside information on its markets.
There are three principal dangers that flow from China having that information.

1. First, Beijing could gain technical information about infrastructure weaknesses should it cyberattack the markets.
2. Second, the Chinese could conceivably use their preferential position, inside the backbone, to profitably trade the markets.
3. Third, Chinese ownership could permit Beijing to “breach personal and business data,” as Rep. Pittenger, who has led the charge in Washington against the Casin bid, told Fox.

“Why on earth would we think that allowing them to control a U.S. exchange is in our interest?” Wessel asks.
Casin’s bid to buy CHX is unlikely to be the last Chinese attempt to control an American exchange. The next offer from that country will require Washington to answer, head on, Wessel’s critical question.

Chinese bid to buy Chicago Stock Exchange stirs security fears

“Chinese will employ deceitful practices to gain an unfair advantage in our financial markets through this acquisition,” Sen. Joe Manchin III
By Renae Merle in New York

Old-style bidding in the wheat pit of the Chicago Stock Exchange in January 1920. 

In its heyday, the Chicago Stock Exchange helped introduce big-name American companies such as Marriott and IBM to investors. 

Now the 135-year-old Midwest institution could do the same for Chinese companies, after it agreed to sell itself to a group of investors led by Chongqing Casin Enterprise Group.
The proposed transaction — an attempt to revive the fortunes of the exchange — has stirred fresh debate about foreign takeovers of U.S. corporations.
The $20 million sale, which requires clearance by the Securities and Exchange Commission, has been lambasted by Republicans and Democrats on Capitol Hill, many of whom say it would be risky to sell such a critical part of the U.S. financial market to a foreign investor. 

Allowing China access to a U.S. exchange could pose a risk to national security, critics say.
“An exchange license is a rare commodity,” Rep. Robert Pittenger (R-N.C.) said. 

“It’s about more than the exchange itself.”
The proposed deal, announced in February, has also been blasted by President Trump, who has criticized Chinese trade practices in recent weeks. 

“China bought the Chicago Stock Exchange — China, a Chinese company,” then-candidate Trump said during a presidential debate in South Carolina last year. 

“They are taking our jobs. They are taking our wealth. They are taking our base.”

The old Chicago Stock Exchange Building, built in 1894. It was demolished in 1972, but the main entrance and portions of the original trading floor were preserved at the Art Institute of Chicago. 

The deal is a test of the Trump administration’s resolve to curb the growing influence of the world’s second-largest economy, particularly in U.S. financial markets.
China’s appetite appears to be growing. 

Chinese investors and companies snapped up 171 companies last year in deals worth more than $65 billion, more than triple the 45 acquisitions, worth $5 billion, done in 2010, according to data from the analytics firm Dealogic.
The exchange is not the only ­financial-industry player with a potential Chinese buyer. 

Former White House communications director Anthony Scaramucci is selling his investment firm, SkyBridge Capital, which has $11 billion in assets, to a Chinese firm. 

Some say that deal, like the agreement for the Chicago Stock Exchange, or CHX, could give Chinese firms new access to U.S. financial markets and a map to its most wealthy investors.
“It’s a bit of a coup to get approved to be involved in the U.S. financial sector,” said Derek Scissors, a China specialist at the American Enterprise Institute, a conservative-leaning research organization in Washington. 

“It’s a nice feather in your cap.”
The privately held Chongqing Casin Enterprise Group attempted to introduce himself to a U.S. audience in March with a blog post, “Hello America, We Are the Casin Group.”
“For qualified companies in developing countries that desire a global presence and a listing in a mature market, [the Chicago Stock Exchange] could give them that opportunity under a U.S. regulatory framework,” Jackson Xiao, vice president of Casin Group and chief executive of its U.S. subsidiary, said in the blog post.
“Of course, this is also an investment, and we believe that CHX — with the help of our acquisition group — has enormous potential for growth,” Xiao said. 

“This transaction can provide a link between the capital markets in China and the U.S., the two biggest economies in the world.”
For this article, Casin referred comment to the Chicago Stock Exchange. 

There, officials said the deal would provide their platform with the capital it needs to grow and potentially turn it into an international force, helping small and medium U.S. and Chinese companies offer stock to the public for the first time. 

Without it, the exchange’s future is unclear, industry experts say.
“The goal is, as the Chinese marketplace matures and thousands of Chinese companies want to seek liquidity, they get their accounting in line, we get them to come to us,” said Tony Saliba, who is part of the investment group pitching the deal and an exchange board member. 

“They are going to list in the U.S. or London. Casin gives us in America an advantage.”
The Chicago Stock Exchange was one of dozens of regional exchanges started in the 1880s to help local companies sell their stock to the public and is one of the oldest still open. 

Twenty-five years ago, the exchange trading floor was “vibrant, packed with a lot of people. 

Every firm was represented; it was a competitor,” said Saliba, who traded there in the 1990s. 

“It could provide the personal touch.”
But as stock trading first started to centralize in New York and then digitize, the Chicago institution found itself serving a smaller and smaller part of the market. 

Now, less than 1 percent of stock traded during a day goes through the venue.
“The Chicago Stock Exchange has been an inconsequential player for a really long time. They have been having a difficult time competing with the large incumbents,” said Spencer ­Mindlin, an analyst who focuses on capital markets at the ­research and consulting firm Aite Group.
And now the exchange is facing a different kind of crisis: U.S. companies are going public at the slowest rate in decades, and more of the day-to-day trading is being done in “dark pools,” or private trading platforms, which offer sellers more flexibility but have taken market share from traditional venues like the one in Chicago.
The exchange has spent years attempting to regain market share. 

It recently developed strategies to help investors compete with high-frequency traders, who can buy or sell a stock in less than the blink of an eye, and developed a strategy for assisting companies completing complex financial transactions.
But to rebound, the exchange needs money. 

Its current owners, a consortium of financial firms that include Goldman Sachs, have not invested in the company for years and have asked for an exorbitant price to sell their stake, driving away potential U.S. buyers, according to people familiar with the exchange’s finances who spoke on the condition of anonymity. 

“They have left it to wither on the vine,” one of them said.
To revive itself, the exchange wants to restart its IPO program, which has been dormant for about 10 years. 

For that, it will need millions of dollars to invest in technology, to hire more people and to prove to the SEC that it is has enough capital to safely help a company offer stock to the public, according to people familiar with the plan.
“If this purchase goes through, we will have a brand-new market­place. This would be a bonanza for the United States and good for Chicago,” Saliba said. 

The companies it would attempt to attract are “small potatoes” to the New York Stock Exchange or Nasdaq but could make a solid business for the Chicago Stock Exchange, he said. 

“We would give them a place to have an IPO efficiently and cheaply.”

And while a relic to U.S. investors, the Chicago Stock Exchange potentially offers a lot to a Chinese buyer, industry analysts say. 

It would be an expensive and time-consuming process for a Chinese firm to get regulatory approval to build a U.S. exchange from scratch. 

By buying the Chicago exchange, Casin would bypass that process and could quickly begin offering a venue for small to medium Chinese companies to stage IPOs.
“They are making a large investment,” Saliba said of the Chinese investors. 

“They believe they can get Chinese business over here. Whether we’re successful or not remains to be seen.”
But the deal has stirred strong objections, particularly from critics who question whether the Chinese firms that would trade on the Chicago exchange would be safe investments for U.S. investors. 

The purchase would also give China unprecedented access to the infrastructure of the U.S. financial system, they say.
Exchange officials note that the deal has already been cleared by the Committee on Foreign Investment in the United States, known as CFIUS, which reviews whether such deals pose national security concerns.
But that has not satisfied the critics, who point to China’s history of stealing intellectual property and state-sponsored cyberattacks. 

“I believe it is highly likely that they will employ similar, deceitful practices to gain an unfair advantage in our financial markets through this acquisition,” Sen. Joe Manchin III (D-W.Va.) said in a July letter to the SEC.
CFIUS needs to be improved to account for China’s aggressive push into U.S. markets, said Pittenger, the congressman from North Carolina.
“You have to have trustworthiness in our economic security,” he said. 

“We welcome Chinese investments, but our concern is anything that could have national security implications.”
The deal’s future now lies with the SEC. 

The agency’s staff has recommended approval of the deal, but its commissioners are asking for more information. 

The agency has extended the time the public can weigh in on the deal until Sept. 17.
The ruling could help define the leadership of Jay Clayton, whom Trump nominated to lead the agency. 

As a Wall Street lawyer, he specialized in helping companies tap the financial markets to raise money. Clayton, who declined to comment for this article, served as an adviser to China-based Alibaba Group in 2014 when it raised $25 billion in an IPO, the largest such deal in history.
Since taking the helm at the SEC, he has called for scaling back regulations to allow more companies to go public. 

“We have to reduce the burdens of becoming a public company so that it’s more attractive,” Clayton said during his confirmation hearing in March. 

He has also praised a 2012 law, Jumpstart Our Business Startups Act, that the Chicago Stock Exchange says it wants to tap to help more small companies go public.
“Jay Clayton is a listings guy. He is an IPO guy. That is a big part of his narrative,” Mindlin of Aite Group said. 

“So what could be his objection?”

Huawei Connection

U.S. Lawmakers Push to Widen Iran Sanctions Probe Beyond China's ZTE

By Saleha Mohsin and Andrew Mayeda

A group of Republican lawmakers is pushing the Trump administration to investigate and unmask a company that may have violated Iran sanctions laws in the same way as Chinese mobile-phone maker ZTE Corp.
ZTE agreed last month to pay as much as $1.2 billion after pleading guilty to shipping U.S.-origin products to Iran in violation of U.S. laws restricting the sale of American technology to the country. In a letter Tuesday, Republican Congressman Robert Pittenger of North Carolina, Alabama’s Mike Rogers and eight other lawmakers, called on Commerce Secretary Wilbur Ross to probe the actions of an "unidentified company" that ZTE has said also evaded U.S. export controls.
The rival is referred to only as “F7” in a ZTE document posted on the Commerce Department’s website. 

The lawmakers in their letter note that news reports have highlighted the similarities between the company described in the documents and Huawei Technologies Co., which is the largest Chinese networking equipment maker followed by ZTE.
“We strongly support holding F7 accountable should the government conclude that unlawful behavior occurred,” according to the letter. 

“We must publicly identify those who break the law so that their activities be taken into account when public procurement activities occur or where critical infrastructure vulnerabilities might arise.”

Smoother Relations
“We do not comment on any law enforcement matters that we may or may not be working on,” Commerce spokesman James Rockas said in an email.
ZTE declined to comment.
A deeper investigation may complicate Donald Trump’s efforts to smooth relations with China after accusing the nation during last year’s election of manipulating its currency and hurting American manufacturers. 

After meeting with Xi Jinping last week, Trump tweeted that it was a “tremendous” meeting.
As Commerce officials last year gathered evidence to add ZTE to its list of restricted companies, the department posted ZTE documents related to the case on its website. 

In a document dated August 2011, ZTE describes how it conducted business in Iran and other sanctioned countries, and cited F7 as a model for such activities.

Fraught Relations
The U.S. relationship with Huawei has been fraught. 

The government has suspicions about whether Huawei has been sending U.S. technology to rogue nations including Syria, Iran, North Korea and Cuba, people familiar with the matter have said. 

The Commerce Department sent an administrative subpoena to the company’s U.S. operations in Plano Texas, Bloomberg reported in June. 

The company said at the time it cooperates with U.S. export control laws.
In 2012, the House Intelligence Committee concluded that Huawei and ZTE represent national security risks. 

Two years earlier, former Commerce Secretary Gary Locke expressed concern about Huawei’s participation in bids for a network upgrade by Sprint Nextel Corp. 

The bids were awarded to companies from France, Sweden and South Korea.
In Tuesday’s letter, the lawmakers said F7 ’s business structure was similar to ZTE in creating a “cut-off” IT company “serving as its agent to sign contractors for projects in embargoed countries.” 

It adds that F7 hired export-control compliance specialists and expanded its export-control liaison offices.
Here are some of the similarities between F7 and Huawei as described in the ZTE document:

• A U.S. government panel blocked F7’s bid to purchase server technology provider 3Leaf Co. due to national security risks. Huawei backed away from a deal to buy California-based 3Leaf due to pressure from the U.S.
• F7 once had a joint venture with Symantec, a California-based digital security company. Huawei had a similar deal with Symantec, which was dismantled.

Alibaba and the Chinese thieves

Alibaba pursuit of MoneyGram raises espionage fears
By San Diego Union-tribune

The acquisition of financial giant MoneyGram by a company with close ties to the Beijing government might be scuppered by rising fears that Chinese spies would exploit the data of American troops and their families to track military movements and identify targets to turn.
The bidding war for Dallas-based MoneyGram pits China’s Zhejiang Ant Small and Micro Financial Services — called Ant — against Euronet Worldwide, a Kansas firm that’s American-owned.
Ant offered $1.9 billion for MoneyGram on Jan. 27. 

Euronet swept in with a $2 billion bid nearly three months later, but the only deal under tentative agreement is Ant’s.
A spin-off of online retail giant Alibaba, Ant operates in China like America’s PayPal system, but its subsidiaries include an online bank and a money-market fund. 

Chinese billionaire Jack Ma directs both companies, although 15 percent of Ant is owned by the Communist government and the sovereign wealth fund it controls.
Hackers linked to China’s military and spy agencies are accused of raiding data from both the American government and key national security contractors, including aerospace leader Northrop Grumman and shippers moving U.S. troops and equipment worldwide.
“With MoneyGram, you have a company that routinely provides financial services to Department of Defense personnel. That information can be analyzed and exploited,” said Christopher Swift, a former investigator at the U.S. Treasury Department’s Office of Foreign Assets Control, where he probed international transactions involving terrorist syndicates, weapons smugglers and rogue nations banned from doing business in America.
“This is a merger that involves America’s financial system, and the financial system is part of the critical infrastructure of the United States. On top of that, MoneyGram collects information about Americans and could be a potential source of information to the Chinese government,” added Swift, now a partner at the Washington, D.C.-based legal firm of Foley & Lardner, where he specializes in white-collar litigation, international law and national-security cases.

MoneyGram’s representatives didn’t return messages seeking comment.

In 2012, the company entered into a deferred prosecution agreement with the U.S. Justice Department after admitting to criminally aiding and abetting wire fraud and failing to maintain an effective anti-money laundering program. 

MoneyGram forfeited $100 million for “turning a blind eye” to the defrauding of tens of thousands of American citizens and agreed to strengthen its compliance department, according to the agreement.
It’s harder to crack down on Chinese government spying.
In 2014, for example, a federal grand jury indicted five members of People’s Liberation Army Unit 61398 for stealing data from American corporations. 

The following year, the U.S. Office of Personnel Management announced that Chinese hackers ripped off the records of up to 21.5 million Americans, a treasure trove of data that included details about military personnel and contractors with high security clearances.
Troops and their families using MoneyGram to send money to relatives, friends or others must fill out forms designed to flag financial crimes such as money laundering and wire fraud.
Depending on the type of transaction, customers can disclose a wide range of personal data, including residential addresses, Social Security numbers, birth dates and banking information, plus similar details about the recipient of the funds.
MoneyGram outlets also record information from a client’s passport, driver’s license, national identity card or other government-issued pieces of identification. 

The info is usually kept for five years in case federal or state bank regulators audit the transactions.
The sheer reach of MoneyGram’s 347,000 outlets or affiliated agents in 200 nations means that it routinely serves military members and their families.
The Union-Tribune counted 20 MoneyGram outlets running in an arc from Temecula Heights past North Island Naval Air Station, San Diego Naval Base and Point Loma’s Third Fleet headquarters to Imperial Beach — where the SEALs are building a new $1 billion compound.
About a dozen MoneyGram outlets are located around Camp Pendleton, and six are situated near Miramar Marine Corps Air Station.
Lemoore Naval Air Station, home to the Navy’s new fleet of F-35C stealthy strike fighters, has a MoneyGram in town. 

So does Yuma, Arizona, home to the Marine Corps’ F-35B program.
It’s a 10-minute drive from the gates of Vandenberg Air Force Base and its top-secret missile and satellite programs to the nearest MoneyGram.
Euronet executives said they’re worried about the geographic pattern.
“Our team has been in the money transfer business for more than 30 years. We have a keen understanding for the significant amount of personal data that is collected and preserved related to the senders and beneficiaries in these transactions, and the view it provides to the financial sector,” Euronet Chairman and CEO Michael Brown said in a statement to the Union-Tribune. 

“We also understand the impact on the lives of customers, and the risks were it to be misused by a company or government. Members of Congress, members of a congressional commission and others have raised concerns about such risks in this transaction.”
Two Republican congressmen with sway over America’s policies toward China — Rep. Robert Pittenger of North Carolina and Rep. Chris Smith of New Jersey — have asked whether Beijing would use MoneyGram data to crack down on human-rights dissidents. 

Other lawmakers told the Union-Tribune they were just learning about the national-security issues dogging the deal. 

Dayanara Ramirez, spokeswoman for Rep. Juan Vargas, D-San Diego, said her office is “currently waiting to get more information/background on the matter.”
Vargas serves on the House Committee on Financial Services, which could exert oversight regarding the transaction.
The proposed sale of MoneyGram to Ant also could fall victim to a tiny federal agency lodged in the U.S. Treasury Department — the Committee on Foreign Investment in the United States, or CFIUS. That office combines the expertise of 11 federal agencies, including the Pentagon and the Office of the Director of National Intelligence, to weigh purchases of key American companies by foreign businesses.
In 2013, CFIUS helped thwart the sale of a mining company to Chinese investors due to concerns that they would own property too near the Navy’s “top gun” fighter school at Fallon Naval Air Station in Nevada and the Corps’ air station in Yuma.
Four years earlier, the office scuttled a similar Chinese deal to acquire another company with holdings near Fallon. 

The review cited “serious, significant and consequential national-security issues” raised by senior Pentagon officials.
In addition, Barack Obama in 2012 barred the Chinese-owned Sany Group from erecting a wind farm near restricted air space at the Boardman test range in Oregon, where the military flies cutting-edge drones.
Because the MoneyGram sale is governed by an executive branch process, Donald Trump will get the final say unless Congress intervenes.
On Jan. 9, then-President-elect Trump met with billionaire Jack Ma at Trump Tower in Manhattan. Ma promised to create 1 million American jobs during the next five years as Alibaba expanded into the United States — a point echoed by Ant in its statement to the Union-Tribune.
The White House didn’t respond to requests seeking comment for this story.

Finally, World Loses Patience With Anti­-Competitive China Trade Practices

China has maliciously dumped products to eliminate not only competitors but also entire industries, as it did in solar panels. 
By Gordon G. Chang

Friday, Shen Danyang, Commerce Ministry spokesman, said Beijing will employ “necessary measures” against World Trade Organization members that do not treat China as a market economy after December 11.
His country, he said, will “resolutely defend its lawful rights and interests against the members who persist with the ‘surrogate country’ approach in their antidumping investigations into Chinese products.”
China is legally entitled to be treated as a market economy for anti­dumping purposes, but many WTO members will not accord it such status.
Today is the 15 anniversary of China joining the global trading body.
Its accession agreement appears to provide that other members are required to grant it MES, market­economy status.
Having such status makes it more difficult to prove that China has, for WTO purposes, “dumped” its products in another country, in other words, sold goods so that their price in the importing market is below the price of those same goods in China.
If China has MES, complaining nations must, for purposes of determining the existence of dumping, use China’s domestic prices when they make the comparison with export prices.
If, however, China does not have such status, complainers can use prices in so­-called surrogate countries, countries other than China.
Prices in those other countries are almost always higher than China’s, making dumping allegations against China relatively easy to prove.
Although technical arguments can be made to the contrary, the better interpretation is that Article 15 of China’s accession protocol automatically grants market ­economy status on the 15th anniversary of its membership.
That is how other nations in fact have read their obligations up to now.
Now, however, China’s trading partners are reading the accession protocol differently.
Japan, last week, and the U.S., before then, have stated they will not grant China market­ economy status.
As Commerce Secretary Penny Pritzker told Chinese officials last month, “it is not ripe for us to change our protocols.”
The European Union is not as direct as Secretary Pritzker.
It has devised a “country­ neutral” rule that permits it to use third­ country prices for anti­dumping purposes to counteract subsidies and other forms of state intervention.
Shen, not surprisingly, said the new EU rules are “disappointing.”
It is, in one sense, disappointing that major trading nations are welshing on their agreements.
If the international community wants China to abide by its trade obligations, other nations should abide by theirs.
As Claude Barfield of the American Enterprise Institute has written, “a deal is a deal and should be honored.”
Yet there are, aside from arguments based on the technical wording of China’s accession protocol, good reasons for other nations to reconsider their deal with China.
As Robert Pittenger, Republican Congressman from North Carolina, wrote on the Fox News Opinion site, “Why should we reward anti­-competitive practices?”
Virtually everybody 15 years ago thought China would evolve into a market economy by now. Almost nobody saw the rise of leaders like Hu Jintao and Xi Jinping, economic nationalists, who sought to close off the Chinese economy.
Xi, in particular, has used Beijing’s resources to bolster state­-owned enterprises as he has pursued his “Chinese dream,” his signature concept contemplating a China dominated by a strong party­-state.
His moves have resulted in many regressive trends including the market playing less of a role in setting prices.
Most observers believe Beijing will take a case to the WTO’s dispute resolution process if some nation does not use China’s own prices in a dumping case.
Chinese officials will feel aggrieved that others are not honoring their promises to China, but they should remember they have routinely violated their WTO obligations and forced others to go through the WTO process, wasting years in the process.
They should also remember the Gordon G. Chang corollary of Confucius’s Golden Rule.
Confucius famously said, “Do unto others as you would have them do unto you,” and I say “Others will do unto you what you have done unto them.” 
China has maliciously dumped products to eliminate not only competitors but also entire industries, as it did in solar panels.
The Wall Street Journal reports that Beijing is now going after the semiconductor and mobile phone sectors.
And don’t forget steel.
China has been “pumping out” more of the product “than the world wants or needs,” and that does not make China look market­-oriented.
The WTO is not a “suicide pact,” and countries are not—and should not—allow China to continue to game the system in such a destructive matter. 

One way or another, they will protect their industries from increasingly predatory behavior.
So what can other countries do?
They may force a renegotiation of the WTO agreement, withdraw from the pact altogether, or simply club China into not complaining.
China’s trade partners, especially those running deficits with Beijing, can do almost anything they want.
Why?
As George Friedman’s Geopolitical Futures tells us, “China must have access to U.S. consumer markets, and Donald Trump knows it.”
The president has already weighed in on the market­ economy issue, saying China is not one.
Moreover, last Thursday he accused the Chinese of “product dumping.”
As he declared at his rally in Des Moines, “They haven’t played by the rules, and I know it’s time they’re going to start.”
“We are playing by the rules and you need to keep your promise,”said Xue Rongjiu of China’s State Council, speaking this month.
“It’s unfair to blame China for your problems, which have resulted from bad management and operations.”
No, Xue, our problems result from your country’s bad behavior. 
As evident in recent days, China’s major export markets have just signaled their patience with Beijing has run out.
Chinese officials can huff and puff, but there is not much they can do when others just refuse to buy their goods.
It’s called a trade war, and other nations are beginning to recognize it exists and are starting to respond.

U.S. Lawmakers Urge Rejection of China-Linked Purchase of Lattice Semiconductor

Letter from lawmakers cite acquirer’s ties to Chinese state and comes days after Aixtron deal block.
By WILLIAM MAULDIN

Twenty-two House lawmakers wrote to Treasury Secretary Jacob Lew, who leads a panel that reviews foreign acquisitions, with unusually grave concerns about the purchase of Lattice Semiconductor Corp. 

U.S. lawmakers are warning the Obama administration not to green-light a China-backed semiconductor deal, increasing the pressure on Beijing just days after Barack Obama barred a Chinese investor from purchasing another technology firm with key semiconductor assets.
Twenty-two House lawmakers wrote to Treasury Secretary Jacob Lew, who leads a panel that reviews foreign acquisitions, with unusually grave concerns about the purchase of Lattice Semiconductor Corp.
Lattice, based in Portland, Ore., said last month it had agreed to a $1.3 billion buyout offer from Canyon Bridge Capital Partners Inc., a new private-equity firm backed by investors in China.
Canyon Bridge, whose activities hadn’t come to light until recently, is based in Palo Alto, Calif., and has funding from unspecified limited partners in China, according to documents Lattice filed with the Securities and Exchange Commission.
“We are concerned with this transaction as [Canyon Bridge] appears to be directly affiliated with the government of the People’s Republic of China and further appears to be a legal construction intended to obfuscate the involvement of numerous PRC state-owned enterprises during the Committee on Foreign Investment in the United States review process,” the lawmakers wrote in a letter dated Tuesday that was seen by The Wall Street Journal.
The committee that reviews foreign deals, known as CFIUS, can recommend that the president block investments emanating from abroad when officials identify national-security issues that can’t easily be mitigated.
On Friday, following a recommendation from CFIUS, Obama took the very rare step of blocking a deal outright, preventing a Chinese investment fund from purchasingAixtron SE, a German technology company with U.S. assets.
Obama’s move to strike down that deal—and the lawmakers’ letter Tuesday—show the escalating concern about Chinese deals targeting sensitive American assets, even before the administration of Donald Trump, who made criticism of Chinese economic moves a cornerstone of his campaign.
Lattice makes communications chips for use in cars, computers, mobile devices and other items. Analysts found one of its programmable chips—a variety known as FPGA, for field programmable gate array—in Apple Inc.’s new iPhone 7.
But in the letter lawmakers led by Rep. Robert Pittenger (R., N.C.) described FPGA as “critical to American military applications” and said “anything other than a rejection of this acquisition” would appear to undermine the administration’s recent public warnings about technology deals.
Commerce Secretary Penny Pritzker told a technology gathering in Washington last month that “we are seeing new attempts by China to acquire companies and technology based on their government’s interests—not commercial objectives.”
China’s Ministry of Foreign Affairs declined to comment directly on the action by U.S. lawmakers, but said Tuesday that “normal investment activities” between the two countries shouldn’t be politicized or “used as a tool to hype the so-called ‘China threat.’”
Beyond the hypercompetitive technology sector, some U.S. lawmakers and politicians are increasingly sour about rolling out the red carpet for Chinese deals in industries where Beijing has blocked international investment in its own market.
The Obama administration prioritized talks with Beijing on a bilateral investment treaty that would have opened up Chinese industries to U.S. investment, but the negotiations stalled over the number of industries China wanted to keep closed.