In this second article on the financial consequences of China’s
advancement to the world's economic center, it should be noted that the main
point is the growing rivalry between the US Securities and Exchange Commission,
the SEC and its famous Chinese counterpart, The China Securities Regulatory
Commission (CSRC).
The goal of this financial war is to capture the huge amount
of capital, transiting through the financial markets, to fund the multinational
corporations.
The weapons of this war are necessarily validity checks and credit
and financial compliance market organizations. In the United States, the financial
crisis of 1905 and that of 1929 have led to the ruin of many small shareholders.
As a result, the State of Kansas in 1911 was the first to create the Blue Sky
Laws, and then most states in the U.S. followed, including New York.
Federal laws have since taken over and created a strong set
of rules with the Securities Act of 1933 to protect investors in the financial
markets. The Securities Exchange Act of 1934 created the SEC itself.
Then followed a series of laws like the Trust Indenture Act
of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of
1940.
Following the Enron scandal which again threatened the
stability of markets, the Sarbanes-Oxley Act of 2002 was passed to create
accounting and management standards specific enough to prevent such future
incidents. This complex and poorly drafted law added some useful guidelines but
also a lot of confusion.
The last major step of regulation in the United States was
the famous Dodd Frank Act and Volker Rule, named after the former head of the
Fed. This 2010 law signed by President Obama aims to prevent owners of big U.S.
and international investment banks and trading companies from proprietary
trading.
This arsenal of regulation is not the result of a
particularly disinterested kindness of Americans. This protection of investors
against massive fraud in the financial markets aims to capture the gigantic
flow of U.S. and international capital into US financial markets. The more secure
the markets, the more investors of all nations from around the world will have
an interest and a willingness to put their money in U.S. financial markets.
Whether they are commercial banks, savings banks, businesses,
sovereign wealth funds, hedge funds, insurance companies, savings banks,
Chinese Trusts, REITS, investment funds, trusts, classic and conservative
financial or exotic vehicle, in addition to small holders by their brokers and
intermediaries banks, funds provided to the US financial markets are the
financial and economic life of the United States of America. The wealthier the markets
are, the wealthier America.
The Securities and Exchange Commission is the supreme
authority of the U.S. financial markets and by repercussion of all the
companies that are listed on the New York Stock Exchanges, or who invest in the
NYSE, specifically all banks and insurances on the planet as well as all
multinational companies worldwide. In other words, the SEC controls everything,
everywhere, all the time.
The Big Five are the giants of the accounting, auditing and
certification of the balances sheets of all the large companies in the world.
The Big Five validate and certify the financial statements of the corporations
listed on the New York Stock Exchange, the NYSE companies.
The Big Five are the guarantors of the regular financial
health reports of the listed companies.
These health bulletins determine the price of the shares of
these corporations and therefore the course of actions of these companies.
To close the loop, since the SEC controls the BIG Five, this
means that the great leading controllers of the SEC control the controllers.
One of the goals of the U.S. financial markets has been to
double-list companies on Wall Street and in the stock exchanges in Hong Kong
and Shanghai. Originally this was meant to produce more money, more
investments, more shareholders, and more money again.
But this double-listing also proved to be the Achilles’ heel
of the U.S. financial supremacy.
Between 2011 and 2013, one of the Big Five, a subsidiary of
Accenture in China, and then others among the Big Five, have been the target of
the SEC regarding the audit of listed Chinese companies in both the financial
markets China and in Wall Street.
The SEC required that Accenture deliver secret information
on its Chinese corporate clients. If Accenture did not comply, then Accenture
leaders could be imprisoned within the United States and Accenture would then
be hit with huge fines.
However, for the first time in the SEC history there was a
complication of size.
This time, the China Securities Regulatory Commission (CSRC)
and the Chinese Government showed their teeth.
The CSRC is the equivalent of the Chinese SEC.
The argument of the CISC and Chinese Government is that the
information required by the SEC from Accenture about corporate clients was
Chinese about Chinese trade secrets protected by Chinese law on secrecy of
business transactions. Their violation would have resulted in the imprisonment
of the Accenture leaders in China this time.
In other words Accenture leaders had a choice between obeying
the SEC and going to jail in China or disobeying the SEC and going to jail in
the United States.
After two years of struggle, the Accenture cases, and other
similar cases, have resulted in a negotiated agreement. Chinese financial
authorities have authorized that certain information be disclosed to the SEC
and the SEC had to be content with only receiving a small portion of the
information that the SEC had first requested.
And so, there was a clear and total victory by China who got
what it wanted from the beginning: for the world to recognize the supremacy now
shared by the United States and China's domination of international finance and
international financial law.
China has long observed this phenomenon essential source
of US economic and financial superpower. China then duplicated this
organization by developing two complementary financial markets: Hong Kong and
Shanghai.
China’s financial law is largely inspired by American
institutions and American laws. It was widely used to create and develop the
stock exchanges in Hong Kong and Shanghai.
Chinese financial law is largely inspired by the US
financial law and now in many areas it tends to be superior to it.
In the same way that the European Commission in Brussels
and the Court of Justice in Luxembourg took the example of the US anti-trust
laws of the late nineteenth century and early twentieth century, and have
improved them from the Treaty of Rome 1957 to the development and implementation
of a policy of preserving competition in
Europe and making it stronger and more effective than the anti-trust laws
developed by the Americans themselves, the same way China has taken the U.S.
financial law and made it stronger and more efficient for itself in China and
abroad.
Then China has chosen to confront the US financial giant.
This confrontation is not purely inspired by national pride. This confrontation
is for the supremacy of the financial markets and the largest possible control
of the international investments that are then injected into the economy.
The United States wants the money for itself.
China wants the money for itself.
What kind of volumes and amounts are we talking about?
More than$ 500 billion per day in the financial markets.
More than $10,000 billion per day for money and bond debt
markets.
And $5-6,000 billion per day on the forex currency
market.
This kind of money is at the center of rivalry between
China and the United States.
Olivier Chazoule
Professor of Financial Law
Director of Studies New York Institute for Business and
Finance
http://www.nyibf.net/
