House Committee Investigates Wall Street’s Funding of Blacklisted Chinese Companies
In a shocking revelation, a congressional committee probe has found that American investors are unintentionally funding Chinese companies that have been embargoed for their association with China’s military or alleged human rights abuses. This investigation by the House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party (CCP) has exposed how American investors’ hard-earned savings and retirement funds are inadvertently supporting the military advancement of a foreign adversary.
The committee, led by Chairman Mike Gallagher (R-Wis.) and Ranking Member Raja Krishnamoorthi (D-Ill.), disclosed this information during a press conference on Thursday. It was revealed that in 2023 alone, Chinese companies received a total of $6.5 billion in funding through U.S. capital markets. Shockingly, over $5.3 billion of this funding was directed towards financing the regime’s military enterprises, with over $400 million supporting known human rights violators and entities involved in forced labor.
Even more concerning is the fact that more than $1.2 billion was allocated to companies associated with those listed on the U.S. Department of Commerce’s trade blacklist, known as the Entity List. Additionally, over $350 million was directed to entities directly listed on the Entity List. This means that American investors are unknowingly supporting companies that have been identified as posing risks to national security or engaging in human rights abuses.
The report emphasizes that while these investments are not illegal, they highlight the need for stricter regulations and transparency in the U.S. financial sector. The committee is urging Congress to pass legislation that restricts investment in blacklisted entities and requires U.S. public companies to disclose risks related to China.
Two major players in the financial industry, BlackRock and MSCI, were notified of this congressional probe last year. These companies provide financial products and use indexes to build investment portfolios for institutional endowments and retirement plans. However, the investigation found that these indexes can attract investments from the United States, even if a company or its affiliates are on a U.S. government blacklist.
The report calls out BlackRock and MSCI for not taking meaningful steps to mitigate or reduce the risk associated with these investments. Both companies argue that they have limited discretion to independently exclude specific problematic entities. However, the report highlights that other big index providers and asset managers also send billions of dollars to the same blacklisted companies, indicating a larger issue in the industry.
The tensions between the United States and China have been escalating in recent years, with both former President Donald Trump and President Joe Biden adopting a tough stance on China. Biden has continued Trump’s strategy of imposing tariffs on Chinese products and has initiated investigations into China’s efforts to dominate various sectors. These tensions, coupled with concerns over human rights abuses and national security risks, have prompted calls for stricter regulations on investments in China.
The congressional investigation has shed light on the need for greater regulatory scrutiny and investor awareness regarding the intersection of geopolitics and investment practices. The report suggests that Congress should enact legislation to limit investment in blacklisted companies, mandate disclosure of risks associated with China to investors, and strengthen the resilience of U.S. financial institutions to market uncertainties related to investments in China.
Overall, this investigation serves as a wake-up call for American investors and the financial industry as a whole. It highlights the potential unintended consequences of investment decisions and emphasizes the need for greater transparency and regulation in order to protect national security interests and human rights. The ball is now in Congress’ court to take action and address these issues before they further undermine America’s economic and geopolitical position.
