Hundreds of millions of U.S. taxpayer dollars went to Chinese companies from the Paycheck Protection Program (PPP), which was designed to help small businesses survive during the pandemic, according to a new report.
A review of public PPP loan data by consultancy firm Horizon Advisory found that $192 million to $419 million in loans were given to more than 125 Chinese-owned or -invested companies operating in the United States. Many of the loans were substantial, with at least 32 Chinese-owned firms receiving more than $1 million under the program, totaling between $85 million and $180 million, it found.
The recipients included Chinese state-owned enterprises, companies that supported Beijing’s military development program, firms identified by the United States as national security threats, and media outlets controlled by the Chinese Communist Party (CCP), the report said. Many were based in critical industries such as aerospace, pharmaceuticals, and semiconductor manufacturing. These are sectors that the CCP has slated for aggressive development to achieve global dominance, with the goal of supplanting competitors in the United States and other countries.
The report concluded that “without appropriate policy guardrails and monitoring of U.S. tax dollars intended for relief, recovery, and growth of the U.S. economy, there is a significant risk that funds will support foreign strategic rivals, namely China.”
Many of these Chinese-linked firms could have tapped into other sources of capital from public or private markets to support their American operations, the report said.
“Their PPP participation saved U.S.-based jobs, but likely at the expense of other U.S. small businesses.”
Horizon Advisory’s findings come amid rising scrutiny of Chinese companies, particularly tech firms, in the United States. President Donald Trump said on Aug. 3 that he would ban Chinese-owned short video app TikTok on Sept. 15 if it’s not sold to Microsoft or another American company. His administration is also considering barring other Chinese social media apps, citing national security risks. U.S. officials have raised the alarm that these apps could be used to spy on Americans, given that Chinese laws compel all companies to cooperate with security agencies when asked.
Meanwhile, the Trump administration is also reviewing whether Chinese companies listed on American exchanges should be compelled to abide by U.S. audit laws. The Chinese regime denies U.S. regulators access to audit books of Chinese firms, citing the information as state secrets.
About $517 billion of PPP loans have been issued since March, when the measure was introduced to help businesses with 500 or fewer workers pay their staff and bills during the economic downturn as a result of the COVID-19 pandemic. The program drew criticism after reports that large companies that could have had access to other forms of credit received loans, prompting the Treasury Department to warn that bigger companies could face penalties if they couldn’t show the loan was essential.
The report said that loans went to affiliates of three Chinese companies that featured on a Pentagon list of 20 firms that are owned or controlled by the Chinese military. It found that six recipients were affiliated with state-owned companies that supply arms to China’s People’s Liberation Army, including Aviation Industry Corp. of China, China Aerospace Science and Industry, and China North Industries Group Corporation (Norinco Group).
Chinese-linked biotech companies were also identified, including California-based Dendreon Pharmaceuticals, which received between $5 million to $10 million in PPP loans. Dendreon is owned by Nanjing Xinbai, a Chinese state-invested company that is controlled by a tech conglomerate with close ties to the CCP.
California-based robotics and AI company CloudMinds Technology Inc. received between $1 million to $2 million in loans. It is a subsidiary of Beijing-based CloudMinds, which was added to the commerce department’s trade blacklist over their ties to the Chinese military back in May.
Loans also went to a U.S. subsidiary of Hong Kong-based Phoenix TV, a pro-Beijing media outlet. While the company is private, a 2019 report by the Hoover Institution at Stanford University said Phoenix TV is “fully controlled by [the] Chinese government.”
Congress and the Trump administration are currently negotiating a second stimulus package that is likely to include more funding for PPP. A Senate Republican recently proposed that the stimulus bill disqualify entities affiliated with China from the loan program, though it remains to be seen if this will be included in the final package.
The Treasury Department did not respond to a request for comment.
It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in place, collecting data on the entire populace. This has been proven beyond a shadow of a doubt by people like Edward Snowden, a National Security Agency (NSA) whistleblower who exposed that the NSA was conducting mass surveillance on US citizens and the world as a whole.
The NSA used applications like those from Prism Systems to piggyback on corporations and the data collection their users had agreed to in the terms of service. Google would scan all emails sent to a Gmail address to use for personalized advertising. The government then went to these companies and demanded the data, and this is what makes the surveillance state so interesting. Neo-Marxists like Shoshana Zuboff have dubbed this “surveillance capitalism.”
In China, the mass surveillance is conducted at a loss. Setting up closed-circuit television cameras and hiring government workers to be a mandatory editorial staff for blogs and social media can get quite expensive. But if you parasitically leech off a profitable business practice it means that the surveillance state will turn a profit, which is a great asset and an even greater weakness for the system.
You see, when that is what your surveillance state is predicated on you’ve effectively given your subjects an opt-out button. They stop using services that spy on them. There is software and online services that are called “open source,” which refers to software whose code is publicly available and can be viewed by anyone so that you can see exactly what that software does. The opposite of this, and what you’re likely already familiar with, is proprietary software. Open-source software generally markets itself as privacy respecting and doesn’t participate in data collection. Services like that can really undo the tricky situation we’ve found ourselves in.
It’s a simple fact of life that when the government is given a power—whether that be to regulate, surveil, tax, or plunder—it is nigh impossible to wrestle it away from the state outside somehow disposing of the state entirely. This is why the issue of undoing mass surveillance is of the utmost importance. If the government has the power to spy on its populace, it will.
There are people, like the creators of TheSocial Dilemma, who think that the solution to these privacy invasions isn’t less government but more government, arguing that data collection should be taxed to dissuade the practice or that regulation needs to be put into place to actively prevent abuses. This is silly to anyone who understands the effect regulations have and how the internet really works. You see, data collection is necessary. You can’t have email without some elements of data collection because it’s simply how the protocol functions. The issue is how that data is stored and used.
A tax on data collection itself will simply become another cost of doing business. A large company like Google can afford to pay a tax. But a company like Proton Mail, a smaller, more privacy-respecting business, likely couldn’t. Proton Mail’s business model is based on paid subscriptions. If there were additional taxes imposed on them, it’s possible that they would not be able to afford the cost and would be forced out of the market.
To reiterate, if one really cares about the destruction of the surveillance state, the first step is to personally make changes to how you interact with online services and to whom you choose to give your data.
Updated at 11:52 am EDT
U.S. stocks turned higher Monday, heading into the busiest earnings week of the year on Wall Street, amid a pullback in Treasury bond yields that followed the first breach of 5% for 10-year notes since 2007.
Investors, however, continue to track developments in Israel's war with Hamas, which launched its deadly attack from Gaza three weeks ago, as leaders around the region, and the wider world, work to contain the fighting and broker at least a form of cease-fire.
Humanitarian aid is also making its way into Gaza, through the territory's border with Egypt, as officials continue to work for the release of more than 200 Israelis taken hostage by Hamas during the October 7 attack.
Those diplomatic efforts eased some of the market's concern in overnight trading, but the lingering risk that regional adversaries such as Iran, or even Saudi Arabia, could be drawn into the conflict continues to blunt risk appetite.
Still, the U.S. dollar index, which tracks the greenback against a basket of six global currencies and acts as the safe-haven benchmark in times of market turmoil, fell 0.37% in early New York trading 105.773, suggesting some modest moves into riskier assets.
The Japanese yen, however, eased past the 150 mark in overnight dealing, a level that has some traders awaiting intervention from the Bank of Japan and which may have triggered small amounts of dollar sales and yen purchases.
In the bond market, benchmark 10-year note yields breached the 5% mark in overnight trading, after briefly surpassing that level late last week for the first time since 2007, but were last seen trading at 4.867% ahead of $141 billion in 2-year, 5-year and 7-year note auctions later this week.
Global oil prices were also lower, following two consecutive weekly gains that has take Brent crude, the global pricing benchmark, firmly past $90 a barrel amid supply disruption concerns tied to the middle east conflict.
Brent contracts for December delivery were last seen $1.06 lower on the session at $91.07 per barrel while WTI futures contract for the same month fell $1.36 to $86.72 per barrel.
Market volatility gauges were also active, with the CBOE Group's VIX index hitting a fresh seven-month high of $23.08 before easing to $20.18 later in the session. That level suggests traders are expecting ranges on the S&P 500 of around 1.26%, or 53 points, over the next month.
A busy earnings week also indicates the likelihood of elevated trading volatility, with 158 S&P 500 companies reporting third quarter earnings over the next five days, including mega cap tech names such as Google parent Alphabet (GOOGL) - Get Free Report, Microsoft (MSFT) - Get Free Report, retail and cloud computing giant Amazon (AMZN) - Get Free Report and Facebook owner Meta Platforms (META) - Get Free Report.
"It’s shaping up to be a big week for the market and it comes as the S&P 500 is testing a key level—the four-month low it set earlier this month," said Chris Larkin, managing director for trading and investing at E*TRADE from Morgan Stanley.
"How the market responds to that test may hinge on sentiment, which often plays a larger-than-average role around this time of year," he added. "And right now, concerns about rising interest rates and geopolitical turmoil have the potential to exacerbate the market’s swings."
Heading into the middle of the trading day on Wall Street, the S&P 500, which is down 8% from its early July peak, the highest of the year, was up 10 points, or 0.25%.
The Dow Jones Industrial Average, which slumped into negative territory for the year last week, was marked 10 points lower while the Nasdaq, which fell 4.31% last week, was up 66 points, or 0.51%.
In overseas markets, Europe's Stoxx 600 was marked 0.11% lower by the close of Frankfurt trading, with markets largely tracking U.S. stocks as well as the broader conflict in Israel. In Asia, a slump in China stocks took the benchmark CSI 300 to a fresh 2019 low and pulled the region-wide MSCI ex-Japan 0.72% lower into the close of trading.
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Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple media reports.
Foxconn’s business has been searched by Chinese authorities and China’s main tax authority has conducted inspections of Foxconn’s manufacturing operations in the Chinese provinces of Guangdong and Jiangsu.
At the same time, China’s natural-resources department has begun onsite investigations into Foxconn’s land use in Henan and Hubei provinces within China.
Foxconn has manufacturing facilities focused on Apple products in three of the Chinese provinces where authorities are carrying out searches.
While headquartered in Taiwan, Foxconn has a huge manufacturing presence in China and is a large employer in the nation of 1.4 billion people.
The investigations suggest that China is ramping up pressure on the company as Foxconn considers major investments in India, and as presidential elections approach in Taiwan.
Foxconn founder Terry Gou said in August of this year that he intends to run for the Taiwanese presidency. He has resigned from the company’s board of directors but continues to hold a 12.5% stake in the company.
Gou is currently in fourth place in the polls ahead of the election that is scheduled to be held in January 2024.
The potential impact on Apple and its iPhone manufacturing comes amid rising political tensions between politicians in Washington, D.C. and Beijing.
Apple’s stock has risen 16% over the last 12 months and currently trades at $172.88 U.S. per share.