Despite the risks, the U.S. government is readying to approve the exchange’s sale to a Chinese firm.
Think you’ve been on a shopping spree over the past few weeks? That’s nothing compared to China.
Chinese companies — many of which are run by the Chinese government — have spent hundreds of billions of dollars globally buying up everything from robotics makers and chemical companies to hotel chains and insurance firms. China spent more than $15 billion in transactions in the United States in 2015 alone.
Now the Chongqing Casin Enterprise Group (CCEG) — a shady Chinese firm suspected of being closely tied to the Chinese government — is preparing to purchase the Chicago Stock Exchange. The Committee on Foreign Investment in the United States (CFIUS), which is charged with examining these sort of deals for potential national security risks, approved the sale last week.
Now it must be reviewed by the U.S. Securities and Exchange Commission. But if the commission approves the deal, it would be the first sale of a U.S. exchange to Chinese investors.
To say that there are risks is an incredible understatement.
It’s unclear who actually owns CCEG. It’s likely that the Chinese government is, at the very least, a minority stakeholder in the company.
In its annual report to Congress this year, the bipartisan U.S.-China Economic and Security Review Commission said China uses state-backed enterprises “as the primary economic tool for advancing and achieving its national security objectives.” The situation is so serious that the commission recommended Congress take action to ban Chinese state-owned firms from acquiring U.S. companies.
Here’s the commission:
“[T]here is an inherently high risk that whenever [a state-owned enterprise] acquires or gains effective control of a U.S. company, it will use the technology, intelligence, and market power it gains in the service of the Chinese state to the detriment of U.S. national security.”
The commission isn’t alone in sounding the alarm bells. In February, a bipartisan group of 45 Members of Congress wrote to CFIUS requesting “a full and rigorous investigation” into the Chicago Stock Exchange deal specifically, further urging CFIUS to deny it “should you determine CCEG maintains a close relationship with the Chinese government — and therefore the Chinese military.”
But our national security isn’t the only thing at risk. Deals like this also could hurt private sector companies.
Companies must provide sensitive data in order to be listed on the stock exchange. We know that China has stolen trade secrets from American companies before — U. S. Steel Corp. filed a complaint with the U.S. International Trade Commission earlier this year alleging just that.
So why would we willingly hand over such vital data to the Chinese?
The United States has one of the most open markets in the world, and we should not automatically fear foreign investment. But allowing a shady company with close ties to a potentially hostile foreign government to control an American stock exchange just doesn’t make sense.
At the very least, deals like these need extra scrutiny to ensure our national and economic security isn’t at risk.