Bob Davis & Lingling Wei’s groundbreaking work this year, Superpower Showdown, delved into the roots of the current Sino-US trade war and the reasons why a consensus for ending the trade war has not been reached. These two authors recently raised several red flags of China’s involvement in Wall Street.

For starters, Liu He, Vice Premier of the People’s Republic of China, met with a group of American finance tycoons during his visits to the US amid negotiations of the trade deals. The meeting gave rise to languages that allowed mega financial firms, including BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Citigroup, to expand their businesses and profit from controlling and managing securities in China.

In previous analyses by the two authors, it was expected that major corporations would lobby Congress not to pass regulations that limit bilateral trade or regulations related to China. This has become increasingly rare since 2015 as firms realize the “hidden costs” of doing business in China: the CCP forces company for technology transfer; they are continually facing copyright infringement lawsuits; they are always losing legal battles in court. However, the finance industry is immune to these troubles as it has not been allowed in the Chinese market. Obviously, opening for the financial tycoons is China’s best bargaining chip now.

Despite efforts from China to open to the foreign financial industry, many wonder if it is just cheap talk. For instance, China’s plans promised to open its market to numerous foreign industries since the 1990s, which turned out to be empty promises. Considering the Chinese market scale and its rapid growth, these hurdles do not prevent US companies from lobbying for an open Chinese market. Such an endeavor makes the Trump administration’s plan to decouple from China challenging to achieve – the Chinese market is simply too crucial for US business to give up on it. Consider this: US finance companies account for around 1% of the market share in China’s finance industry, while the market grows enormously. It is easy to imagine why major finance firms are jumping on the China wagon.

During the trade war, representatives from major firms in Wall Street have served as go-betweens for China, including the CEO of Blackstone, Stephen Schwarzman, Former Secretary of Treasury Henry Paulson, and John Thornton from Goldman Sachs. This group’s shared agenda is to help lift the general population in China out of poverty, and they often laud the efforts by the Chinese government in this area. They also believe that their firms could benefit tremendously by setting up an investment management network.

For instance, the CEO of Blackrock, Larry Fink, has begun to get involved in China’s pension reform since 2018 on a concept called “achieving a more sustainable and inclusive capitalism.” This concept is appealing to Democrats as it includes goals such as investing in green energy, achieving “sustainable” investment, promoting transparency in the finance industry, and aiding the general public. Despite these lofty goals, some Republicans such as former Senator Martha McSally and Senator Kevin Cramer actually feel unease about Blackrock’s involvement in China, suspecting that the firm is not clearly revealing its business in China.

The newly nominated National Security Advisor, Jake Sullivan, felt similar worries about this issue. He once openly questioned why the interests of these firms should be looked after in negotiations with China. Larry Summers, former Treasury Secretary in the Clinton Administration, also opined that Biden should avoid catering to these special interests during his term.

These concerns are warranted. The new director of the National Economic Council, Brian Deese, and United States Deputy Secretary of the Treasury, Adewale “Wally” Adeyemo, were both Blackrock higher-ups. Putting the China factor aside, the fact that these bankers regularly hold key positions raises questions about whether they would put “inequality” on the top of their agenda – an issue that they often stressed should be dealt with urgently. As winners in this globalized economy, they benefit from a system (leverage and securitized high-risks industries) that contributes to their wealth at the expense of the general public, resulting in rising inequalities across the globe.

Things are not all bad. In the nominations for the Council of Economic Advisors, which can directly report to the president, both female candidates have expertise in income inequality and diversity. Many believe that they could be a countervailing force to the bankers in the administration. Bankers holding key positions in administrations is not news. However, this new administration’s situation could be dire as China is likely to wield its power to influence its friends on Wall Street in making decisions. The extent to which these factors could influence policy and Sino-US relations remains to be seen.

(Fang-Yu Chen ([email protected]) is PhD in Political Science at Michigan State University. Twitter: @FangYu_80168

Charles K.S. Wu ([email protected]) is PhD candidate of Political Science at Purdue University. Twitter: @kuanshengtwn

Yao-Yuan Yeh ([email protected]) is Associate Professor of International Studies and Chair of the Department of International Studies and Modern Languages at the University of St. Thomas, Houston. Twitter: @yeh2sctw

Austin Wang ([email protected]) is Assistant Professor of Political Science at University of Nevada, Las Vegas. Twitter: @wearytolove)

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