American Quislings: Stop Investing in China’s Crimes Against Humanity,

It’s time for pension funds and others to stop supporting companies that abet Beijing’s crackdowns on China’s Uighurs and Hong Kong’s protesters.

By Danielle Pletka and Derek Scissors

Last month, the United States government issued sanctions against eight Chinese companies for complicity in the crackdown on Chinese Muslims in East Turkestan.
As many as a million Uighurs, Kazakhs and other ethnic minorities have been “interned” — wrenched away from families and dumped into harsh concentration camps.
In light of those sanctions, why haven’t the California State Teachers’ Retirement System and other American funds announced that they would stop investing in companies under sanctions?
And why is the federal employee retirement fund poised to move retirement assets to an index fund that includes Chinese companies in 2020?

By any standard, China is led by an amoral dictatorship.
In addition to the continuing horrors in East Turkestan, young people in Hong Kong fighting for freedom fear being brutalized by Chinese security forces. 
In the South China Sea, the People’s Liberation Navy has all but annexed a vast swath of other nations’ territory and international waters.
Chinese companies, answerable to the Communist Party, have built surveillance into drones that Americans buy and telephones that are bought the world over. 
Beijing trolls your children’s apps and Chinese hackers have already breached the private financial and personal information of millions of Americans, not to mention the possibility of forays into America’s most advanced defense plans.
American financial heavyweights and pension funds have in recent years shunned fossil fuels, guns and other investments on ethical grounds.
Yet when it comes to providing capital to Chinese companies — including those directly engaged in surveillance or supporting the People’s Liberation Army — many haven’t resisted investment.
Both state-owned and nominally private Chinese companies enjoy almost unfettered access to American capital markets, including listing on American exchanges and heavy investment from some of the nation’s largest pension funds. 
In mid-2019, China was among the top 10 countries in which the California State Teachers’ Retirement System (CalSTRS) invested. 
According to the most recent data, from June 2019, CalSTRS owned 4.1 million shares of Hangzhou Hikvision Digital Technology Co., which has faced sanctions from the Trump administration for manufacturing surveillance equipment that is being used in the East Turkestan concentration camps. 
The New York State Teachers’ Retirement System and the Florida state pension fund have owned shares of the same company (the New York State Common Fund liquidated its shares in Hikvision in May).
These and other pension funds including New York State’s, and the enormous California Public Employees’ Retirement System (CalPERS) have indirectly owned shares in iFlytek Co Ltd., another of the Chinese firms blacklisted by the U.S. government.
We reached out to the funds, seeking the current status of their investments in Chinese companies, but got little information.
“We have been tracking the situation,” CalSTRS told us, and a representative for the New York State Teachers’ Retirement System said: “Our holdings in public international equities are primarily held according to their weights in passive portfolios benchmarked to the MSCI ACWI ex-U. S. index, our policy benchmark.”
A company representative at CalPERS just pointed us to its Governance & Sustainability Principles. A representative for the Florida state pension fund confirmed that it still owns shares in Hikvision.
There are sound political and financial reasons to question the wisdom of exposure to Chinese public and “private” companies. 
It’s almost impossible to know at what moment the United States may levy sanctions against a company for complicity in the Chinese government’s malign agenda.
Hikvision, Huawei, ZTE (telecommunications conglomerates that also spy for their Beijing bosses), and some others, are good examples.
There is also pure fiscal prudence: Chinese corporate data is notoriously sketchy. 
China’s own National Audit Office has found a number of cases of falsified accounts among listed companies, even among top state-owned enterprises.
In an amusing example from earlier this year, the pharmaceutical manufacturer Kangmei discovered it didn’t have $4.4 billion in cash as its records indicated, with the explanation that it had experienced an “accounting error.”
Lack of accounting and management transparency also plague Chinese stocks listed on the NASDAQ, the New York Stock Exchange and other markets. 
Megacompanies like Alibaba Group, Baidu, PetroChina, China Life Insurance Company and JD.com officially have a combined market capitalization of over half a trillion dollars.
Despite that, Chinese firms have repeatedly failed to comply with American financial regulations, including required inspections of their accounting records — a requirement that runs counter to the goals of China’s National Administration for the Protection of State Secrets.
The Trump administration has considered blocking Chinese access to American capital markets for regulatory noncompliance.
A more straightforward option would be to demand compliance from Chinese firms.
After all, the notion that select foreign firms would be exempt from, say, environmental or labor regulations is absurd. 
Why are financial regulations different?
As far as indexed funds are concerned, a mild response may be in order.
Why tell individual or institutional investors they cannot invest, when simply informing them — cigarette warning style — could suffice: “This fund includes companies that help suppress human rights, support the Chinese Army and may be spying on the United States.” 
Who could argue against the government providing basic facts?
Ultimately, many of these problems fall into the category of known unknowns.
The main challenge is the risk posed to the uninformed: the millions of Americans who depend on their state or employee pension funds, and may have no clue where their hard-earned pennies are being invested. 
For example, the federal employees (including the military) whose 401(k)-like plan — known as the Thrift Savings Plan or TSP — has confirmed it will move its retirement assets to a new index made up of about 8 percent Chinese companies in 2020. 
As a result, federal employees could soon be supporting Chinese rights abusers, the People’s Liberation Army and spies.
Despite those facts, congressional efforts to derail TSP’s investment in Chinese firms have been met with horror.
Legislators can’t tell anyone where to invest — until they do, as the Islamic Republic of Iran and its supporters in corporate and financial America learned some years ago.
Divestment from companies and funds that treat money and morality as separate matters has been gaining speed at both the state and federal level. 
Perhaps it’s time for the same ideals to apply to China — one way to protect American investors, American ideals, and American security all at once.

Rogue Investment

Think twice about your investment portfolio. It likely undermines human rights in China.
By Marion Smith

Rushan Abbas, 51, of Herndon, Va., holds a photo of her sister, Gulshan Abbas, last year in Washington. Her sister is among the many Uighurs detained by China. 

Does your retirement plan or investment portfolio undermine human rights in China?

For millions of Americans, the answer is yes. 

They unwittingly hold or benefit from investments in companies that enable the Chinese Communist Party’s oppression and imprisonment of the Uighur people.
Consider two Chinese firms, Hikvision and Dahua Technology. 

They supply about one-third of the world’s security cameras, but in their home country, both companies have received government contracts — totaling more than $1 billion — to install a vast surveillance apparatus in the western colony of East Turkestan. 

“The projects include not only security cameras but also video analytics hubs, intelligent monitoring systems, big data centers, police checkpoints, and even drones,” Charles Rollet wrote in June in Foreign Policy.
Beijing has deployed the system to try to control the predominantly Muslim Uighurs, viewed by the Communist Party as a threat to its power in that region. 

The surveillance equipment helps authorities identify supposedly dangerous individuals, many of whom are then shipped to concentration camps that Beijing calls “vocational training centers.” 

Of a total population of about 11 million, 2 million Uighurs may have been thus imprisoned.
In these camps, Uighurs are subjected to torture and brainwashing intended to eradicate their culture and force them to embrace communist ideology. 

The Post’s editorial board has decried this “massive campaign of cultural extermination.”
For their part, Hikvision and Dahua have not directly addressed their involvement in Beijing’s surveillance of the Uighurs. 

The companies have pointed with pride to their contribution to "anti-terrorism" efforts generally, and Hikvision last year lamented how “Western media” has distorted its image with “alarmist headlines.”
But the surveillance state that Beijing has established in East Turkestan would not be possible without the companies’ help. 

Most Americans would not willingly support companies that enabled such oppression, but many investment funds and state pension plans own shares in Hikvision and Dahua Technology, likely without individual investors’ knowledge.
The investments occur through several different channels. 

Most directly, U.S.-based funds purchase shares of the two companies. 

The New York State Teachers’ Retirement System (NYSTRS) owned more than 26,000 Hikvision shares at the end of last year. 

The California State Teachers’ Retirement System (CalSTRS), which represents nearly 1 million members and beneficiaries, owned more than 4.3 millionshares in Hikvision as of last June. 

NYSTRS did not respond to a request for comment. 

A CalSTRS spokesperson said they are “researching the issues surrounding the company.”
Another path for investment comes through the influential MSCI Emerging Markets Index. 

Many funds invest directly in the index, while others follow its portfolio. 

The MSCI index is currently tracked by $2 trillion in assets. 

The index added Chinese A-Class shares from both Hikvision and Dahua last year. 

Any time a fund invests in the MSCI Emerging Markets Index, it buys positions in both businesses.
Through both active and passive investment funds, Americans also hold stock or bonds in many other questionable or dangerous Chinese companies, including subsidiaries of firms affiliated with the Chinese military. 

According to RWR Advisory Group, U.S. investment funds rarely conduct due diligence to identify and avoid companies complicit in human rights abuses or connected to China’s defense industry. 

The Financial Times reports that public attention to their investments in Hikvision has prompted at least seven U.S. equity funds to divest from the company, but the better path is to be proactive, not reactive.
Fortunately, the U.S. government and lawmakers can force change.
In the short term, Congress should hold hearings on Chinese companies suspected of aiding Beijing’s sinister activities while benefiting from U.S. financial markets. 

Sen. Marco Rubio (R-Fla.) deserves credit for bringing this matter to his colleagues’ attention. 

Longer term, Congress could pass legislation creating the equivalent of the Committee on Foreign Investment in the United States, which determines whether foreign acquisitions of American firms pose a national security risk. 

The White House could also direct the National Security Council, the Treasury Department, and the Securities and Exchange Commission to establish a screening mechanism for Chinese entrants into U.S. capital markets.
Outside of Washington, each state should commission a report on all Chinese debt and equity holdings in its public-pension systems and other state investment portfolios. 

For their part, pension funds should immediately divest from Chinese companies and their subsidiaries — as well as funds such as the MSCI Emerging Markets Index that include them — if they facilitate human rights abuses or otherwise undermine U.S. values and interests.
Americans deserve to be able to invest with confidence that the free-enterprise system isn’t being exploited to fund communist tyranny. 

Buying stock in Chinese companies complicit in the terror against Uighur people might earn plenty of money, but it’s a bad investment.