How Two Banks Defied the U.S. Geoeconomic Strategy on China

In the Great Power competition between the U.S. and China, firms have become pawns on the geoeconomic chessboard. When the Chinese firm Contemporary Amperex Technology (CATL) was listed on the Hong Kong Stock Exchange, it received help from two American banks despite opposition from the U.S. government. Why did they proceed, defying the government’s request to stop?

CATL is the world’s largest battery maker. Its products are used in electric vehicles, but also in energy storage units for electric power grids. The firm is already listed on the Shenzhen Stock Exchange, but in May it also got listed in Hong Kong. CATL has an international presence with a factory in Germany, and  the capital raised with the secondary listing will be used to fund the construction of a new manufacturing plant in Hungary.

Two American banks, JPMorgan and Bank of America, assisted CATL in its secondary listing. The banks’ involvement was not without controversy, as the battery producer has been designated as a Chinese military company by the U.S. Department of Defense (DoD). Consequently, both banks received a letter from the chairman of the Select Committee on the Chinese Communist Party (CCP) urging them to end their cooperation with CATL.

The geostrategic use of the economy, geoeconomics, has become an important aspect of great power competition in a globalized world. Since firms, including banks, are some of the most important actors in the economy, having a say over them is crucial for effective geoeconomic policy. Yet, for most firms, the priority is making a profit. If the government’s strategy hampers the firm’s profit maximization, the firm might resist.

In that case, the success of geoeconomic policy will be determined by the power of the state over the firm. Several scholars, such as Lars Gjesvik and William Norris, have come up with a framework to assess the state-firm power balance. In general, they argue that it will depend on the power of the firm, the relation between the state and the firm, and the power of the state.

The theory might help explain how the banks managed to defy U.S. strategy. First, there is the strength of the two banks. The banking sector in the U.S. is quite powerful due to its significant contribution to GDP, and the two banks in question are some of the mightiest in the sector. JPMorgan is the biggest U.S. bank in terms of assets, and is well under way to become the world’s first trillion-dollar bank, while Bank of America is the U.S.’ second biggest. Together they account for 28% of assets in the US regulated financial sector, as shown in Figure 1.

Figure 1: Share of assets per bank in the U.S. financial sector

Own calculation based on data of the U.S. Federal Financial Institutions Examination Council

Second, there is the relation between the state and the banks. U.S. financial institutions have always been close to the government. In the last few years, the sector has invested in even closer relations, as the number of bank lobbyist has steadily increased. JPMorgan in particular is very intimate with Washington. Insiders have credited its CEO Jamie Dimon as one of the people that convinced President Trump to back down in the recent tariff wars. Mr. Dimon has also been mentioned as a potential US Treasury Secretary. As a result of the close relations, the banks have a large influence over decision making in Washington.

Despite the power of the banks and their close relation to the government, the U.S. has been able to pressure its banks into complying with geoeconomic policy in the past. When it wanted to remove Iran from the financial messaging system SWIFT in 2018, it pushed the banks to comply against their own and the EU’s will. Why, then, did it fail this time?

The question requires us to consider the third component of the power balance: the power of the state. The inclusion of CATL in the DoD list of Chinese military companies does not automatically result in a prohibition for American firms to do business with it. Despite the strong wording in its letters, the Select Committee on the CCP is part of the legislative branch, and has limited powers to take concrete measures.

The ability to act therefore lies with the president. An executive order of 2020 prohibits the trading in securities of Chinese military companies and grants the president the powers of the International Economic Emergency Powers Act (IEEPA) to enforce the ban. The act has been used to install far more controversial actions, such as implementing the worldwide tariffs on April 2nd. Hence, President Trump had the possibility to exert significant pressure on the banks.

One factor that might have played a role in the president’s reluctance to intervene, was the influence of Elon Musk (who was still close to the president at the time). CATL is an important battery supplier for Tesla, an electric vehicle manufacturer that is owned by Mr. Musk. Another factor might have been the transactional strategy of President Trump towards China. In recent months, the president has prioritized deal-making and he might have wanted to avoid new controversies by forbidding the banks to help the Chinese firm. In the grand scheme of the global tariff bargaining, the listing of one Chinese firm might not have been worth risking successful negotiations for.

To sum up, firms play an important role in geoeconomic competition, so the effectiveness of a country’s strategic policy will depend on its grip over them. The two banks are powerful actors in the US economy and have close relations to the government. Blocking the listing also didn’t seem to be a priority of the president. These three considerations might explain why the banks could defy US interests and assist in CATL’s listing. It also shows that the US government still has room to tighten its grip.