China cautions U.S. on investment curbs

BEIJING -- China warned the U.S. against trying to limit investment ties between the two countries, even as President Donald Trump's administration contradicted a report that Washington might be considering removing Chinese companies from American stock exchanges.

The Foreign Ministry appealed to Washington to "meet us halfway" and resolve disputes amid a tariff war that threatens to depress global economic growth.

The Trump administration issued a partial -- and qualified -- denial to the report, which said officials are discussing options including forcing a delisting of Chinese companies from U.S. exchanges, imposing limits on investments in Chinese markets by U.S. government pension funds and putting caps on the value of Chinese companies included in indexes managed by U.S. firms, according to people familiar with and involved in the discussions.

"To exert extreme pressure and even attempt to force the decoupling of China-U.S. relations will definitely damage the interests of U.S. and Chinese enterprises and people, cause financial market turmoil and endanger international trade and the world economic growth," said a Chinese Foreign Ministry spokesman, Geng Shuang.

Bloomberg News on Friday reported that Larry Kudlow, head of Trump's National Economic Council, was leading deliberations inside the White House over what some hawks have labeled a potential "financial decoupling" of the world's two largest economies.

But in a statement emailed to Bloomberg over the weekend, a spokeswoman for U.S. Treasury Secretary Steven Mnuchin said there were no current plans to stop Chinese companies from listing on U.S. exchanges.

"The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time," Treasury spokeswoman Monica Crowley said. Crowley did not address any of the other options reported and declined to offer any further details of the discussions.

The original Bloomberg story -- which was later matched by other news organizations, including the Financial Times and The New York Times -- unnerved markets in the U.S. and led to a slump in U.S.-listed Chinese firms. On Monday, Chinese equities fell in the final session before a weeklong holiday. U.S. stocks advanced, reversing some losses sparked by the news, and Treasury notes edged lower.

TRADE TALKS

Negotiators are due to meet next week in Washington for a 13th round of talks aimed at resolving the tariff war over complaints about Beijing's trade surplus and technology ambitions. Chinese Vice Premier Liu He and other senior officials are expected in Washington talks Oct. 10-11.

The two sides have announced conciliatory measures, including lifting or postponing punitive tariffs. But there has been no sign of progress toward settling their core disputes. Economists say a temporary agreement is possible but a permanent deal is unlikely this year.

"We hope that the United States will work with China to deepen economic, trade and financial cooperation between the two countries," Geng said. "We hope the United States will meet us halfway to work out a resolution in a constructive manner."

White House trade adviser Peter Navarro responded to the story Monday in an interview with CNBC. He acknowledged that the White House is looking at issues related to Chinese stocks, while broadly denying Bloomberg's story as "fake news." He refused to answer multiple questions from the network's anchors about what was inaccurate, cutting them off repeatedly.

"There's some significant issues related to Chinese stocks listed on public exchanges," he said. "There's some interesting and significant transparency issues with Chinese stocks, but that's all I'm going to say, I'm not going to talk about what's going on behind closed doors."

While both sides are eager to secure at least a short-term truce in what is now an 18-month-old trade war that has started to drag on the global economy, national security hawks inside the Trump administration continue to push for the conflict to be broadened.

The desire by some inside the White House for new controls on the flow of capital to China reflects the multidimensional economic war some Trump advisers are eager to wage against a rising economic rival. Beyond the tariffs on some $360 billion in imports from China imposed since last year, the Trump administration is pursuing strict new controls on exports of technology and has taken a skeptical approach to Chinese-backed investments in the U.S.

STOCK, BOND INDEXES

People close to the White House deliberations say they remain preliminary and that no final course of action has been decided. They also insist the focus is on protecting U.S. investors from unwittingly ending up with stakes in Chinese companies that do not have the same auditing standards as U.S. listed firms.

One factor in that happening, they say, is the increasing presence of Chinese institutions on indexes such as MSCI's benchmark emerging markets index and a Bloomberg Barclays bond index. Both are used by many institutional investors to decide the composition of their funds.

The growing Chinese presence on international indexes reflects the country's economic rise and Beijing's decision to continue opening up its financial markets to outside investors. Earlier this month, China lifted long-standing quantitative limits on foreign investment in mainland markets.

China on Sunday declared that the government would continue to open up its financial markets and encourage foreign investment.

"We will take further steps to promote high quality two-way financial opening, encourage foreign financial institutions and funds to invest in the domestic financial market to boost the competitiveness and dynamism of the domestic financial system," says a summary from the eighth meeting of the Financial Stability and Development Committee posted on its website.

Information for this article was contributed by Shawn Donnan, Jenny Leonard and Saleha Mohsin of Bloomberg News; and by staff members of The Associated Press.

A Section on 10/01/2019

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