Tensions between America and China are at boiling point amidst President Biden’s crackdown on US investments into Beijing firms.
The escalation has shone renewed light on an uncomfortable question for most Americans: would you be happy for your 401(K) to fund Chinese military operations?
For many this is a reality as leading Wall Street investment companies have been exposed for both directly and indirectly funding Chinese firms which have been blacklisted by the US Government.
In July, Republican Rep. Mike Gallagher, chairman of the House Select Committee of the Chinese Communist Party, wrote a letter to the leaders of major investment groups BlackRock and MSCI to raise his concerns about their ties to certain Chinese companies.
The letter – which was cosigned by Democrat and fellow committee member Raja Krishnamoorthi – accused both firms of ‘fueling the People’s Republic of China’s military advancement’ and ‘facilitating the Chinese Communist Party’s human rights abuses.’
Last month President Bident signed an executive order banning new American investment in tech industries which could enhance Beijing’s military capabilities. Pictured: Biden with China’s President Xi Jinping at the G20 summit in November 2022
US investment firms have been linked to ‘red flag’ companies such as those that manufacture Chinese fighter jets. Pictured: a Chinese J-11 military fighter jet
BlackRock is one of the country’s biggest asset managers, with around $9 trillion in funds, while MSCI is an investment research firm which provides stock indexes, portfolio risk and performance analytics to investors. Some $13.7 trillion worth of assets are invested in funds benchmarked to MSCI indexes.
Millions of Americans have their personal and retirement savings invested in funds either benchmarked by BlackRock and MSCI.
Gallagher and Krishnamoorthi conducted an ‘initial review’ of both companies and identified dozens of ‘red flag’ Chinese firms that were part of BlackRock and MSCI’s funds – either directly or through their subsidies.
The term ‘red flag’ refers to those that appear on the US Government’s blacklist. Such activities are technically legal for the Wall Street firms.
Yet examples of Chinese firms covered by their funds include the Aviation Industry Corp. of China (AVIC) which produces advanced Chinese air force fighter jets, according to the Washington Post.
They were also tied to the China State Shipbuilding Corp which manufactures Chinese navy warships.
CGN Power Co. – a firm which has been accused of trying to steer US nuclear technology to the Chinese ministry – also has links to BlackRock and MSCI, according to the letters from Gallagher and Krishnamoorthi.
Early last month President Biden signed an executive order banning US venture capital and private equity firms from investing in tech industries which could enhance Beijing’s military capabilities.
China hit back declaring it was ‘very disappointed’ by the order and hinted at retaliation.
But critics insist it doesn’t go far enough. Biden’s order only addressed US investments into helping China develop artificial intelligence, quantum mechanics and semiconductor technology.
Examples of Chinese firms with links to both BlackRock and MSCI were laid out in a letter by Rep. Mike Gallagher and Democrat Raja Krishnamoorthi who both sit on the House Select Committee of the Chinese Communist Party
Gallagher, pictured, told the Washington Post it made ‘no sense’ to allow Wall Street to fund Chinese companies developing technologies with ‘clear military applications’
Yet it left a loophole for firms to invest in other sensitive areas such as biotechnology and energy technology.
Rep. Gallagher told the Washington Post: ‘It makes no sense that we restrict the export of sensitive technologies to China but allow Wall Street to fund Chinese companies trying to overtake us in these same technologies with clear military applications.’
Similarly, House Foreign Affairs Committee Chairman Michael McCaul accused the White House of ‘solely pursuing half measures that are taking too long to develop and go into effect.’
And the order only covered direct investment into such firms, leaving another loophole that facilitates US investment in Chinese military-related companies via index funds offered by both MSCI and BlackRock.
Krishnamoorthi told the Post: ‘It’s really important we do things to make sure that we don’t end up either wittingly or unwittingly funding the military capability that could be used against us.
‘It doesn’t get enough attention, but it is vital.’
For the past few decades, American investors have been encouraged to strengthen their ties to China – to unite the two economic superpowers.
But recent Government reviews have concluded such investments were fueling China’s military and intelligence-collection abilities.
A spokesman for MSCI told DailyMail.com: ‘MSCI indexes measure the performance of equity markets available to international investors, and comply with all applicable US laws. MSCI does not manage or recommend or facilitate investments in any country.
‘MSCI is engaging constructively with the House Select Committee.’
Meanwhile BlackRock said: ‘Like many global asset managers, BlackRock offers our clients a number of strategies to invest in or exclude China from their portfolios.
‘The majority of our clients’ investments in China are through index funds, and we are one of 16 asset managers currently offering US index funds investing in Chinese companies.
‘With all investments in China and markets around the world, BlackRock complies with all applicable U.S. government laws. We will continue engaging with the Select Committee directly on the issues raised.’