College Endowments Warned By US State Dept. To Divest China Investments

Parents Forum
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https://finance.yahoo.com/news/u-warns-colleges-divest-china-193512269.html

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I honestly don’t know much about this subject. I’d love to hear from those here who understand the background and effect of this decision.

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My thought is that the US State Dept. is issuing this warning for three reasons:

  1. Negotiating leverage with the Chinese government in the upcoming round of trade talks–threatens to do significant financial harm to the wealthiest & most powerful Chinese citizens as a form of pressure on the Chinese government;

  2. Cautionary advice following the Luckin Coffee stock market accounting & earnings fraud uncovered over the past months (EY Ernst & Young China affiliate certified the results under the EY Ernst & Young name if I recall correctly);

  3. To thwart Chinese spying & technology theft occurring on US university campuses. Essentially the US Government wants US colleges & universities to take steps to curtail this spying & theft of intellectual property even to the extent of refusing Chinese funded research project funding / money.

These are just my best guesses.

4

My point #2 above in post #2 above should be supplemented with the following:

If other Chinese stocks listed on US exchanges do not adhere to appropriate accounting standards, then those Chinese stocks may be delisted which would likely result in a decrease in value. Essentially, the US Government is warning college endowments about a significant investment risk–delisting.

5

I worked on listings of foreign securities in the US markets in the late 80’s to the mid 90’s, so the rules may have changed, but I think basic principles still hold true. Foreign companies could satisfy certain US periodic reporting requirements as long as they complied with “home country” public company reporting standards. They could also present their financials under then IAS (now IFRS) vs US GAAP. This was done to facilitate foreign company access to US capital markets – they would not have to comply with 2 different public reporting and accounting regimes.

In the Luckin case, it was fraud whether under US or Chinese standards. It’s been years (decades) since I looked at Chinese reporting/regulatory standards, but while they were different, they were not less onerous than US standards. We can debate enforcement and susceptibility to fraud, but it is not as if securities fraud doesn’t happen in this country. So to me, this is just another part of the war that this administration is waging with China. They want to put pressure on China by potentially restricting access to US capital markets. It’s another pressure point/chip that it is using or threatening to use.

6

Definitely agree that the US is attempting to limit Chinese companies access to US capital markets as a negotiating pressure tactic.

Also agree that Luckin Coffee was pure fraud under either country’s standards.

EY (Ernst & Young China) denies any complicity or negligence on its behalf regarding Luckin Coffee certifications.

P.S. Financial pressure (financial warfare) by the US can be very effective–just ask Iran or Venezuela or North Korea.

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  1. There’s a Presidential election coming soon.
  2. There’s a Presidential election coming soon.
  3. There’s a Presidential election coming soon.
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@RichInPitt Agree that political considerations are a primary factor in motivating such action, but that doesn’t mean that real issues needing attention don’t exist. (For example: I would not equate this warning action with action taken against Iraq.)

Lots of economic & geopolitical issues with respect to these two superpowers which affect most of world. (As an example: Japan has started the process to build an aircraft carrier due to China’s incursions into Japan’s territorial waters. This is a very significant, but lightly publicized, development.)