INTERVIEW: ‘There's exposure across Wall Street’ — Radio Free Asia

Release time：2024-05-21 23:49:16 Source：Earth Explorer news portal

The House Select Committee on the Chinese Communist Party last week released a reportdetailing investments by two American financial institutions for Chinese companies “red-flagged or blacklisted” by the United States for advancing China’s military or for rights abuses.

The report says two fund providers, in particular, are responsible for funneling billions of dollars invested by regular Americans in their index and retirement funds into the companies – even if it’s all legal.

The first, MSCI, which it calls “the world’s foremost index fund provider,” has $3.7 billion invested in the companies, according to the report. The second, BlackRock, “the world’s largest asset manager,” has $1.9 billion invested in the companies, the report says.

Alim Seytoff of RFA’s Uyghur service discussed the report with Rep. Raja Krishnamoorthi, a Democrat from Illinois who serves as his party’s ranking member on the House Select Committee.

The following has been lightly edited for clarity and brevity.

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Radio Free Asia: The House Select Committee on the CCP has issued a report about U.S. financial institutions providing billions of dollars to Chinese companies committing human rights abuses, and funding the Chinese government's military capabilities. Were you surprised by the findings of the report?

Rep. Raja Krishnamoorthi: I was initially surprised. I first learned about some of the initial findings back in the August-September 2023 timeframe. I was very concerned that so much money was going into companies involved with either the perpetration of human rights abuses, or in the modernization of the People's Liberation Army. 

I then learned later on that, unfortunately, there's exposure across Wall Street. It's not just one or two companies, but a number of investment companies have that exposure to the blacklisted companies. 

We have to do more in Washington legislatively to prohibit this type of investment. But at the same time, I tell friends on Wall Street that it's probably a bad idea to be investing in these types of companies.

RFA: Your report found that nearly $6.65 billion has gone to these Chinese companies that are developing China's most advanced stealth fighters, also increasing China's nuclear capabilities, as well as assisting China's genocide of the Uyghur people. What was the response from companies like BlackRock and MSCI?

RK: First they said “It's legal.” Secondly, they said, “If we don't do it, others will.” And third, they said, “This is something that's widespread.”

With regard to their first point – that it's legal – that is something we have to work on. But regardless of whether it's legal or not, I don't think investors want this to happen. That was a point we made also about federal retirement funds. Fortunately, the Federal Employees Retirement System listened to us and removed some of those investment options from the portfolios. But overall, I think taxpayers and investors would be very surprised to learn of our findings.

RFA: These companies know that China is committing genocide against the Uyghurs. Also, these companies should know that China poses the most serious national security threat to the United States. So while this is not illegal, don't they have any kind of national security or moral concerns over their investment? 

RK: The short answer is that it's just not a concern that has seemed to motivate them to do things differently. For some, I do think that they're concerned about that. But for others, I don't think that's the case. 

Certainly, for our part in Washington, we have to do a better job. We had a field hearing near Wall Street, actually. I made the point to all those who were paying attention to our findings on Wall Street that if you didn't know this before, you know it now. So you're on notice not to continue. But, regardless, we have to take action in Washington.

RFA: The committee made recommendations for some legislative efforts to prevent U.S. companies from investing in these Chinese companies. In the meantime, what do you think the Biden administration can do to stop investments to these companies?

RK: The Biden administration has an executive order that prevents investments in certain sectors, including A.I., quantum tech, semiconductors, and so forth. It's targeted at private equity and venture capital funds, and that's a good start. But we need to turn the executive order into law, so that it becomes more predictable for the future. 

We don't want executive orders to keep changing depending on the administration. I also think there has to be some attention paid to passive investments, not just active ones, as well as private equity and venture capital, because there's billions of dollars that – as we detail in this report – are occurring through passive investments. 

In this case, we pointed out the passive investments in blacklisted companies. So what I'd like to see is legislation that addresses not just what's in the Biden executive order, but also passive investments. 

There's also something called “variable interest entities,” or VIEs. Those are, to me, a very shady financial instrument. I don't know if it should be, quite frankly, legal for people to invest in VIEs. But unfortunately, every IPO we've had with regard to a Chinese company has been in these VIEs, not in the underlying stock of the company. 

Given that the Chinese government has already said that these VIEs are illegal, the value or worth of these investments could be zero at the whim of the Chinese Communist Party. Given these issues, there's a real risk to our markets and to average ordinary investors.

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