Tensions are undoubtedly rising between Washington and Beijing. And Congress has already held several this year on the China challenge. But with the G7 recently calling China the “greatest challenge of our age,” it’s clear that Congress must act — including efforts to cut off U.S. investment that funds Beijing’s growing authoritarianism.
Unfortunately, that now extends to the billions of dollars that Americans are unwittingly investing in China.
There’s an old saying in Washington: Follow the money. In China’s case, it’s the stunning amount of capital traveling from the United States to Beijing every day. A small part of that comes from the federal government investing in Chinese securities. But the lion’s share comes from America’s retail investors regularly purchasing billions of dollars worth of questionable Chinese entities in U.S. capital markets. The net result is that Americans are helping to fund the growth of America’s greatest adversary.
The U.S.-China Economic and Security Review Commission (USCC) has identified 252 Chinese companies — including eight state-owned enterprises — listed on America’s three largest stock exchanges. Additionally, thousands of other Chinese companies tied to forced labor and Beijing’s military also are included in the passive investment products and mutual funds sold in America’s financial arena.
Essentially, U.S. financial markets have become the key means for Chinese firms to attract global funding. But with Washington’s heightened concern over Beijing, it’s critical that Congress target the investor capital funding many of China’s state-controlled companies. And that means providing America’s investors with transparent information on the risks of investing in China. Congress could accomplish this easily with new reporting requirements added to existing regulations.
It’s not just investors who are buying shares in Chinese companies. Thousands of U.S. pension plans and retirement portfolios also contain Chinese companies. America’s investors may be unaware of these risks, and they should be given the chance to pull their money from portfolios containing Chinese entities. This matters, in particular, at the state level, where state and municipal pensions control billions of dollars in investments. States can act now to divest — and ensure their employees’ retirements aren’t tied to China’s economy.
At present, there are plenty of fraudulent Chinese firms in America’s capital markets. And while the Public Company Accounting Oversight Board has been tasked with scrutinizing Chinese companies listed on U.S. exchanges, its agreement with Beijing only allows U.S. investigators to scrutinize a small subset of audits and transactions. That means America’s investors are often left in the dark. It also means that China inexplicably faces less scrutiny than the rest of the world in complying with the standards of the Securities and Exchange Commission (SEC) and Oversight Board.
Realistically, there’s far too little oversight of outbound investment in China. And too much of America’s financial-market speculation is being routed to the modernization of China’s military and its civil-military apparatus. Unfortunately, many U.S. pension plans have gotten caught up in this opaque web of stocks and funds — particularly companies tied to China’s forced labor.
This is where not just Congress, but also state and local governments, can step in, requiring the identification of all stocks, exchange-traded funds and mutual funds connected to China’s forced labor. These companies and funds should face the threat of being removed from America’s capital markets unless they divest from China’s human-rights abuses. It’s time to tell multinationals that, if they keep sourcing from slave labor, they’ll pay a heavy price.
China’s malign antics continue to escalate. And the American people are growing concerned. Whether it’s the city of Miami, the state of Florida or the U.S. Congress, America’s lawmakers need to prioritize now — and cut off investor funding of Beijing’s state-sponsored enterprises. It’s time to force the issue, while the United States can still act from a position of strength.
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