A House committee is investigating two mammoth asset management companies over their links to companies that support the Chinese Community Party.
The House of Representatives Select Committee on the Chinese Communist Party notified BlackRock and MSCI on Monday that they were under investigation and called for the companies to provide extensive details about investments that support China.
“It is unconscionable for any U.S. company to profit from investments that fuel the military advancement of America’s foremost foreign adversary and facilitate human rights abuses. We therefore seek additional information regarding this deeply troubling matter,” Committee Chairman Rep. Mike Gallagher of Wisconsin and Ranking Member Rep. Raja Krishnamoorthi wrote Monday in letters that went to the CEOs of the two firms, according to a news release on the committee’s website.
The committee said on its website that its goal is to “build consensus on the threat posed by the Chinese Communist Party and develop a plan of action to defend the American people, our economy, and our values.”
BlackRock manages more than $9 trillion in assets largely through pension plans and savings. The company said it is working with the committee to address the panel’s concerns, according to the Wall Street Journal.
MSCI selects securities making up indexes often used as a basis for investment portfolios. The Journal reported more than $13 trillion in assets are benchmarked to MSCI products. MSCI said it is reviewing the committee’s communication.
The letter to BlackRock said that “a brief review of just a few of BlackRock’s funds revealed that BlackRock facilitates American capital flows to more than 20 blacklisted PRC companies.” PRC is the acronym for the People’s Republic of China.
“Across just five funds, we approximate that BlackRock has invested more than $429 million in PRC companies that pose national security risks to and act directly against the interests of the United States,” the letter said.
After noting that many Americans have money invested through BlackRock, the letter said, “Our review has shown that, as a direct result of decisions made by BlackRock, these Americans are now unwittingly funding PRC companies that develop and build weapons for the People’s Liberation Army (PLA) — the PRC’s military — and advance the CCP’s stated mission of technological supremacy.”
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“By facilitating massive flows of American capital to these and other PRC entities linked to the PLA or to human rights abuses, BlackRock is exacerbating an already significant national security threat and undermining American values,” the letter to BlackRock said.
The letter to MSCI was similar, noting that MSCI “facilitates American capital flows to dozens of blacklisted PRC companies.”
“Our investigation identified at least 40 listed companies (or subsidiaries and affiliates of such companies) across the five indexes, many of which were included on multiple indexes. The proportion of red-flag companies varied by index, but as of March 1, 2023, nearly 5% of the total value of the MSCI China A Index was pegged to companies on the red-flag lists” cited in the letter.
The letters called for disclosure of which companies were supported by investments, and whether there was due diligence in checking red flag lists before investing in those companies.
The Journal noted that the panel is part of Congressional efforts to address American support for Chinese companies.
One part of that is a bill called the DITCH Act that would stop money from tax-exempt entities supporting China.
The Dump Investments in Troublesome Communist Holdings Act would require tax-exempt entities such as non-profits, university endowments, and public pension plans to divest from Chinese companies or lose their tax-exempt status, according to a news release on the House committee website.
“American taxpayers should not be forced to subsidize investments that benefit the Chinese Communist Party. Universities, non-profits, public pension funds, and other institutions that want preferential tax treatment must choose: are they committed to their professed values or to financing a genocidal communist regime?” said Gallagher, who introduced the bill in the House.
Republican Sen. Josh Hawley of Missouri supports the bill in the Senate.
“Universities, foundations, and other entities are exempt from federal income tax for their work promoting the public good in the United States. Investing in China does the opposite: it advances the economic ambitions and military modernization efforts of the Chinese Communist Party while selling out American workers and values,” he said.
