This paper addresses the challenges China’s economic policies and integration into the global financial system are generating for U.S. companies, investors, and agencies charged with ensuring stability, transparency, and risk management practices.
Rocky Road: Risks to U.S. Companies and Investors in the Chinese Financial Sector
China’s economic rise has corresponded with a deepened financial interdependence with the United States. Strategic competition, geopolitical tensions, increasing U.S. restrictions, and the Chinese Communist Party’s own economic policies have added to inherent market risks that U.S. companies and investors face in China.
These risks are further complicated by the PRC’s lack of transparency and disparities between U.S. and PRC regulatory regimes. This is generating challenges for U.S. companies and investors and the U.S. agencies responsible for ensuring stability, transparency, and sound risk management practices in the U.S. and global financial systems.
The first section of this paper highlights the risks for U.S. companies and investors in China and the difficulty quantifying those risks, specifically: inconsistencies in accounting and disclosure rules, economic risks brewing in the PRC and CCP interventions, geopolitical risks to U.S. companies and investments, and uneven capacity to measure risks.
The paper concludes with specific recommendations:
- For industry, including the full range of multinational companies to small and medium enterprises:
- Improve public risk disclosure
- Increase understanding of the geopolitical environment, both its opportunities and its risks
- Couple awareness with the ability to act by improving agility and resilience.
- For policymakers and regulators:
- Use quantitative methods to investigate the impacts of proposed policies and regulations, particularly indirect and unintentional effects
- Include geopolitical risk in regulatory stress tests
- Further address interjurisdictional regulatory discrepancies.