Sec Asked To Act On Stock Sales By China Lawmaker Says Chinese May Be Skirting U.S. Disclosure Laws In Stock Transactions
Suggesting that China may be skirting U.S. disclosure laws in stock sales of big government-owned companies, a senior House lawmaker has asked the government’s top securities regulator to take action.
Rep. Gerald Solomon, R-N.Y., who heads the House Rules Committee, recently told the chairman of the Securities and Exchange Commission, Arthur Levitt Jr., that the Chinese actions represent “a potential threat to our country.” He urged Levitt to take “appropriate” action, possibly including an investigation.
At the same time, Solomon and Sen. Lauch Faircloth, R-N.C., are pushing House and Senate bills that would establish a new Office of National Security within the SEC to monitor foreign involvement in U.S. securities markets, financial institutions and pension funds.
The legislation doesn’t name any countries specifically, but China clearly was foremost in Solomon’s thinking. He proposed his bill last Wednesday - two days before Chinese President Jiang Zemin rang the opening bell at the New York Stock Exchange during his official U.S. visit.
Jiang’s trip, which included a summit with President Clinton, also leaned heavily on business concerns. The Chinese leader addressed stock exchange executives and CEOs of major brokerage firms, had meetings at private U.S. corporations and attended a state dinner hosted by Clinton with some of the biggest names in corporate America.
Solomon is to testify Wednesday at a hearing on the issue by the Senate Banking subcommittee on financial institutions.
SEC spokesman Christopher Ullman declined comment on Solomon’s letters to Levitt and the proposed legislation. Spokesmen at the Chinese Embassy didn’t immediately return a telephone call seeking comment.
In a letter dated Oct. 9, Solomon told Levitt that if the Chinese “succeed in illegally manipulating our capital markets, they will have introduced another element in their strategic offensive against our country. I encourage you to treat this issue as a potential threat to our country and take appropriate action.”
At issue is the sale to U.S. investors of a chunk of giant state-owned China Telecom. Its special New York shares began trading on the New York Stock Exchange on Oct. 22.
In an Oct. 20 follow-up letter to Levitt, Solomon cited a Bloomberg News story that quoted China’s communications minister as saying the government would ease accounting rules to boost China Telecom’s profits. The statement by Wu Jichuan came in mid-October as shares of so-called “Red Chips” - companies backed by China - plunged on the Hong Kong stock market.
Solomon called Wu’s reported statement “cynical, manipulative and direct evidence of fraud.”
“The highest priority of American securities law is to provide accurate information to the American investor, and (China’s) actions flout that objective,” he wrote Levitt.
The lawmaker expressed similar concerns about two other government-owned companies, China Southern Airlines and Beijing Enterprises, which also are expected to sell special shares here.