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Democrats, ethics expert raise questions about nominee's

China

business ties

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Lutnick's BGC has joint venture with Chinese state-owned

firm

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Lutnick's Fitzgerald Cantor has helped Chinese firms trade

on US

exchanges

(Adds BGC statement paragrapghs 6-7)

By Alexandra Alper

WASHINGTON, Nov 20 (Reuters) - Investment banker Howard

Lutnick's exposure to China came into sharp relief on Wednesday,

after Republican President-elect Donald Trump tapped him to lead

the agencies that have become the tip of the spear in the

U.S.-China trade war.

The financial services firms helmed by Lutnick have profited

from ties to China: from BGC Group ( BGC ), which has a joint venture in

Beijing with Chinese-state owned China Credit Trust, to Cantor

Fitzgerald, which has helped take Chinese firms public in the

United States.

The financial ties raise questions about whether Lutnick

could be unduly influenced by Beijing when making decisions

about whether to impose fresh tariffs and export curbs on China

as United States Trade Representative and Commerce Secretary,

lawmakers and ethics experts said.

"Mr. Lutnick's conflicts of interest in China appear to be

substantial. How can the American people expect someone who is

on the Chinese government's payroll to help level the playing

field with China for working Americans?" asked Democratic

Senator Ron Wyden, who chairs the Senate finance committee.

Cantor Fitzgerald and the Trump campaign did not respond to

requests for comment.

In a statement on Thursday afternoon posted to BGC's

website, Lutnick said if confirmed, he would step down from his

positions at Cantor and BGC.

"I intend to divest my interests in these companies to

comply with U.S. government ethics rules and do not expect any

arrangement which involves selling shares on the open market,"

he added.

Democratic Senator Tim Kaine, who serves on the foreign

relations and armed services committees, said he expected

Lutnick "will be pressed about his financial connections to U.S.

adversaries. It's crucial that our Commerce Secretary's top

priority be the American people, not their personal business

dealings."

Lutnick's financial services firm BGC Group ( BGC ) has a 33%

stake, valued at nearly $28 million, in a joint venture with

China Credit Trust, a "financial state-owned enterprise" whose

largest shareholder is state-owned China People's Insurance

Company (PICC Group), according to the joint venture's website.

PICC group has ties to Huawei, the Chinese telecoms

equipment giant heavily sanctioned by Washington amid fears it

could spy on users. In November 2022, PICC Group signed a

contract with Huawei to establish a joint innovation laboratory

to deepen collaboration in financial technology, according to a

statement by Huawei.

The joint venture, known as China Credit BGC Money Broking

Company Limited, was licensed to operate in Beijing in 2010, as

the first currency brokerage company there, according to the

website, and provides brokerage and data services for domestic

and foreign exchange markets as well as money, bond and

derivatives markets.

The tie-up, according to a BGC press release, marked "the

first Sino-foreign joint venture inter-dealer broking company to

have been granted a business license by the China Banking

Regulatory Commission to operate in Beijing."

'BUSINESS PARTNERS'

Lutnick is essentially "business partners" with the Chinese

government, said Kathleen Clark, a professor of government

ethics at Washington University in St. Louis. "This raises the

specter of the Chinese government having leverage over the

commerce secretary," she said. "Worst case scenario, it is

surrendering control to a foreign government."

U.S. law bars any executive branch official from

participating "personally and substantially" in a "particular

matter" that would affect their financial interest.

According to Clark, Lutnick may not be seen as running afoul

of that law, because any trade or export policy change he might

impose would likely only have an indirect impact on his

financial interest.

However, the emoluments clause of the constitution, she

said, aims to keep foreign governments from having undue

influence over U.S. policy via financial benefits for a U.S.

official from a foreign source.

"That is why we have the foreign emoluments clause in the

first place," she added.

Cantor Fitzgerald has also helped Chinese companies gain a

foothold among U.S. investors. The firm underwrote Chinese

biotech firm Adlai Nortye's ( ANL ) NASDAQ IPO last year, the

first successful Chinese company to list since Beijing

implemented new rules requiring Chinese firms to obtain a

special filing before listing shares overseas.

Cantor Fitzgerald was the lead underwriter in two other

deals in 2015 and 2019 that allowed Chinese companies GD Culture

Group ( GDC ), a holding company for digital marketing and AI technology

firm AI Catalysis Corp, and Aesthetic Medical International to

trade on U.S. exchanges, according to the U.S. China economic

and security review commission. Aesthetic Medical International

was delisted by NASDAQ earlier this year.

The challenges faced by Lutnick in twinning his business and

policy portfolios are highlighted by BGC's own September

financial filing, which notes that U.S. China trade relations,

which could be partially controlled by Lutnick, could impact

company results.