A messy financial divorce for the U.S. and China

A messy financial divorce for the U.S. and China

The HFCAA aims to bolster the transparency of financial reporting and protect investors, not least by revealing if companies are controlled by their government. While it applies to all foreign companies listed on US exchanges and selling securities to US residents, it is clearly directed at Chinese firms: The 217 US-listed Chinese firms - with a combined market capitalization exceeding $2 trillion - do not allow foreign audits for "national security“ reasons.Barring an alternative solution, a large number of Chinese firms may have to look elsewhere to raise capital in three years. Thanks to the US dollar's status as the world's main reserve currency, a next step could be US restrictions on China's access to dollar payments, clearing, and custody systems, with adverse consequences for China's trade, capital markets, and supply chains.And yet, even as official financial decoupling progresses, the opposite is happening privately. US and other financial firms are - with China's blessing - building asset management, securities, life insurance, fintech, and custody businesses in the Chinese market. Since last year, a few foreign financial firms (such as Allianz, HSBC, and Standard Chartered) and a flurry of US entities (including BlackRock, Bridgewater Associates, Citibank, Goldman Sachs, JP Morgan, Morgan