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Wednesday, October 20, 2021

The California Pension Fund has increased its investment in Chinese A-shares as the SEC scrutinizes Chinese stocks.

The U.S. has recently signaled more austerity measures against U.S.-listed Chinese companies and warned investors about the potential risks of investing in these companies.

The Public Company Accounting Oversight Board (PCAOB) approved a new framework on September 22 to require companies not audited by American audit firms (China Concepts Stocks) to release more information to help PCAOB implement the Holding Foreign Companies Accountability Act. The structure will take effect after approval by the US Securities and Exchange Commission (SEC).

SEC Chairman Gary Gensler reiterated in late August and again on September 14 that if China does not comply with concept stock rules and does not allow the United States to review their audit summaries over the years, they will be excluded from the stock market in early 2024.

On September 20, the SEC warned individuals and entities that invest in stocks, indicating that U.S.-listed China concept stocks compel U.S. investors to invest in overseas shell companies under the VIE (Variable Interest Entity) framework. A Chinese entity, which means investors do not own equity in the Chinese entity and thus face potentially significant risks.

Currently, of the companies listed in the United States, only Chinese (including Hong Kong) companies are not allowed by PCAOB to review their original audit documents on the basis of national security.

The head of China’s Securities Regulatory Commission (CSRC) said on November 20, 2020 that it was not a matter of non-compliance with relevant US laws and regulations, but a matter of border control cooperation.

On Aug. 1, Gensler asked the SEC to suspend the list of Chinese companies in the United States through the VIE framework, and reiterated that Chinese companies must allow U.S. regulators to review their core financial audits. Two days later, the CSRC responded by promising to create conditions for the promotion of Sino-US audit regulatory cooperation.

Lakin Coffee, the top Chinese beverage chain listed in the United States, was listed in June 2020 for falsifying financial statistics. Anta Sports, Pinduuduo and other Chinese stocks were shortlisted in April, 2020 due to suspected financial fraud.

Closed door US-China financial roundtable

Mike Sun, a U.S.-based private investment adviser, told The Epoch Times that Beijing does not see the SEC’s increased oversight of Chinese concept stocks as a way to remove them from its list, but rather to protect the interests of U.S. investors to comply with U.S. laws and regulations.

Sun said he believes the CCP, however, will not give up because the United States has tightened its grip. Instead, it will not base itself on issues that it considers a threat to itself, such as data protection. The CCP will add Wall Street and Wall Street will continue to act as a middleman for its own benefit.

The CCP recently stepped up its efforts to open up its financial markets for Wall Street, following a September 1 US-China financial roundtable meeting with Wall Street’s top bankers. BlackRock, and Fidelity China have received approval to set up fully foreign-owned public fund companies in China.

According to Sun, outside of the Wall Street Titans, international accounting firms led by the Big Four will also play a big role.

California Pension Fund

According to Frank G., a professor of business administration at the University of South Carolina Aiken, international accounting firms are turning a blind eye to CCP’s fake accounts and financial misrepresentations.

Hong Kong-based PricewaterhouseCoopers, an auditor for the recently troubled Chinese company Evergrand, failed to include even a worrying warning when it signed the company’s 2020 financial report.

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Moreover, according to the annual investment report 2019-2020 of the California Public Employees Retirement System (CalPERS), the largest U.S. pension fund has invested more than 3 3 billion in Chinese companies by June 2020. Of that, the U.S. government invested more than 50 450 million in 14 Chinese companies affiliated with the blacklisted CCP military.

Xie believes that these large American funds have different ways of investing in China concept stocks than smaller funds. They don’t necessarily work through Wall Street investment banks. They have their own operators and they can manage themselves in the open market including Hong Kong Stock Market and China A-Share.

For a large fund like Calpers, with more than 400 400 billion under its management, the choice to invest in a Chinese company is directly related to its managers. Meng Yu, the fund’s former chief investment officer, is of Chinese descent and once said his “roots are in China.” Prior to joining Calpers in January 2019, Meng served as Deputy Chief Investment Officer at China’s State Administration of Foreign Exchange, which manages more than 3 3 trillion in foreign exchange reserves.

Meng abruptly resigned from Calpers in early August last year. Shortly afterwards, the California Fair Political Conduct Commission (FPPC) began investigating two allegations filed against Meng, claiming that he had failed to properly disclose certain personal investments and sales of stocks and other holdings.

Comparing Calpers ’investment reports for the two fiscal years 2018-2019 and 2019-2020, The Epoch Times found that the fund increased investment in many Chinese companies during this reporting period. This has increased the holdings of some H-shares in Hong Kong and A-shares in China, especially China A-shares.

For example, CalPERS’s investment in Alibaba Group Holdings Limited has increased from zero in 2018-2019 to. 18.65 million in 2019-2020. Its investment in Alibaba Pictures Group Limited increased from $ 2.62 million to $ 11.78 million and its investment in Alibaba Health Information also increased from $ 2.42 million to 8 9.84 million.

Also, Calpers has recently increased investment in a number of companies that have recently made headlines, such as Evergrande, the world’s most hated Chinese real estate company; China Huarang, a state-owned asset management firm that has just been granted bail by the CCP with an injection of 7.74 billion; Alibaba and Tencent, the Chinese internet giant that has been consistently punished by Xi Jinping, including Tencent Music, which was invested through ADR; BGI, China’s leading gene technology company, is being questioned for helping to collect CCPs and establish a global gene bank; Ping is an insurance that was recently abolished by the Xi administration; Synofem and Synovac, which manufactures and manufactures Chinese vaccines and assists in CCP’s global vaccine diplomacy.

At least six of the Chinese companies that received increased investments from CalPERS in fiscal years 2018-2019 and 2019-2020 are on the US blacklist, which has banned investment due to alleged CCP military connections. These include China Communication Construction A-Share, China Communication Construction H-Share, China National Chemical A-Share, China Mobile Ltd., China Telecom Corporation Limited H-Share and China Unicom Hong Kong Ltd.

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Jennifer Bateman is a news writer who focuses on China.

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This News Originally From – The Epoch Times

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