The coronavirus crisis has revealed the severe supply-chain risks
inherent in tying the U.S. economy to China. But a potentially even
bigger problem is Wall Street indexes and related funds drastically
increasing their stakes in opaque and often criminal Chinese companies,
without disclosing the risks to millions of American investors.To get
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Senior U.S. officials, lawmakers and experts are sounding the alarm
about huge pension funds increasing their holdings of Chinese assets,
despite economic and national security concerns. The retirement savings
of millions of U.S. investors are becoming dependent on the success of
Chinese companies that lack real transparency, are connected to the
Chinese military or stand accused of complicity in mass atrocities.
Beijing pushes Wall Street to fund its firms, enlisting U.S. citizens in
support of China’s economic aggression. And when national security
officials speak out, they are accused of racism, a common Chinese
government tactic to reject any criticism.
Robert C. O’Brien, the national security adviser, weighed in Wednesday
on the controversy surrounding the California Public Employees’
Retirement System, known as CalPERS. The largest public pension fund in
the country, CalPERS manages more than $300 billion in assets for 1.6
million public employees. It has steadily been increasing its holding of
Chinese assets.
“It’s something we are looking at. It’s an issue for American
investors,” O’Brien said at the Heritage Foundation in Washington. “Some
of the CalPERS investment policies are incredibly concerning.”
O’Brien pointed out that Chinese companies’ books can’t be verified —
and they are notorious for cooking their books — so the risks to
investors can’t be known. He also noted CalPERS is directing U.S.
taxpayers’ dollars into companies connected to the military expansion of
an adversary.
CalPERS holds $3.1 billion worth of shares in 172 different Chinese
companies and last fall rebalanced its portfolio to add 198 companies,
half based in China. Their holdings include Chinese military contractors
such as China Shipbuilding Industry Corp. and companies currently
sanctioned by the Commerce Department for building surveillance and
internment camps in Xinjiang, such as Hikvision.
The economic and national security concerns are linked. U.S. pressure on
Chinese bad actors is undermined when Wall Street sends them billions
in cash. In turn, the more Wall Street is invested in Chinese bad
actors, the more they lobby against Washington’s actions, to Beijing’s
benefit.
Ben Meng, CalPERS’s chief investment officer and a U.S. citizen who grew
up in China, once was connected to a Chinese Communist Party
recruitment effort called the Thousand Talents Program. The FBI has said
Beijing uses this program for nontraditional espionage. The Senate
Permanent Select Committee on Investigations revealed in a recent report
several instances of the program being used for criminal abuses of U.S.
institutions of all kinds.
China’s People’s Daily reported in 2017 that Meng was recruited through
the Thousand Talents Program for his three-year stint as deputy CIO for
China’s State Administration of Foreign Exchange (SAFE). Rep. Jim Banks
(R-Ind.) called on California Gov. Gavin Newsom (D) to fire Meng, based
on the association.
Meng eventually admitted his past connection to Thousand Talents last
month, while CalPERS and several Wall Street heavyweights attacked
Banks. Oaktree Capital founder Howard Marks accused Banks of singling
out Meng "on the basis of [his] family’s national origin.” CalPERS is a
client of Oaktree.
Scrutiny of Thousand Talents is not targeted at ethnically Chinese
participants. The H. Lee Moffitt Cancer Center and Research Institute
fired its non-Chinese CEO and vice president in December for not
disclosing their participation in Thousand Talents. The chairman of
Harvard University’s chemistry department — also not ethnically Chinese —
was criminally charged in January for hiding his Thousand Talents
connections while taking Defense Department money.
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