All foreign companies in China partner with CCP, says Rep. Gallagher.
The Chinese Communist Party: A Silent Business Partner
The Chinese Communist Party (CCP) is not just a government entity in China, but also a partner to every foreign company doing business in the country, according to a congressional committee. Lawmakers and experts emphasized the stark differences in corporate environments in China during a recent hearing focused on the risks faced by American companies operating there.
Rep. Mike Gallagher (R-Wis.), chairman of the Select Committee on the Chinese Communist Party (CCP), stated that there is no such thing as a “private company” in China. He highlighted Chinese laws, including the CCP’s anti-espionage and data security laws, which give Beijing the authority to access any data, seize assets, and take intellectual property as it pleases.
Gallagher also mentioned the CCP’s practice of embedding communist party branches or cells in various entities, allowing officials to monitor operations and access confidential information. He warned that China’s Military-Civil Fusion policy effectively turns private companies into extensions of the People’s Liberation Army and communist intelligence apparatus.
Foreign auditing, consulting, and due diligence firms have also faced pressure from Beijing in recent months. Gallagher pointed out raids on U.S. firms, highlighting the CCP’s view of accurate business information as a threat to its rule.
The Dangerous Environment for U.S. Companies
Piper Lounsbury, chief research and development officer at Strategy Risks, testified about the “dangerous” environment created by the CCP for American companies in China. She explained that the party’s goals aim to replace or subjugate American firms while using them in the near term. Lounsbury highlighted the CCP’s reliance on theft, coercion, and access to U.S. technologies, intellectual property, and data.
She shared examples of direct threats made by CCP officials to American CEOs, demanding the release of intellectual property or risking market access. Lounsbury also described cases of blatant IP theft and the establishment of state-funded competitor factories by Chinese firms. The CCP’s IP theft has been estimated to cost the U.S. economy billions of dollars annually.
Lounsbury expressed concerns about individual data falling into the hands of the CCP, particularly through identity technology service providers affiliated with the Chinese Communist Party. She recommended implementing due diligence measures to secure personal information and biometrics.
Risks Associated with Chinese Stocks
The hearing also examined the risks faced by American investors buying Chinese stocks. Gallagher warned that many Americans mistakenly believe they ”own” Chinese stock in their retirement plans and pensions. However, these investments often involve claims on variable interest entities (VIEs), which do not provide traditional control of corporate governance or claim on assets.
VIEs allow Chinese companies to list offshore entities overseas, bypassing restrictions on foreign investments. Investors essentially own shares in shell companies, facing risks such as a lack of legal remedy. The U.S.-China Economic and Security Review Commission reported that 161 Chinese companies listed on U.S. stock exchanges use the VIE structure.
Rep. Andy Barr (R-Ky.), a member of the Select Committee, raised questions about these risks during the hearing.
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