U.S. investors have pumped over $2.3 trillion into China since 1992, according to an unpublished U.S. government document that tracks over 180,000 U.S. investments in equity positions in China and Hong Kong. The 2021 document, recently obtained by The Epoch Times, tracks more than 6,000 U.S.-based corporate and institutional investors. It is based on November 2020 publicly available information compiled from SEC filings.
As a proxy for measuring the extent to which U.S. investors are subsidizing Chinese capital markets with dollar inflows and contributing to the advancement of the Chinese state through domestic corporate growth, we measure the sum of the market value for all investor holdings aggregated by year,” according to the document. “From this statistic, we can also derive a dollar representation of the extent to which U.S. investor capital, including from state pension funds, is subject to China country risk, and the extent to which the U.S. institutional investor class overlaps with Chinese state assets.”
According to the government’s financial analysis, the sum of U.S. holdings in China from the top 6,000 investors is over $2.3 trillion dollars. Approximately $2 trillion of this is invested in publicly-listed Chinese entities, with $276 billion invested in privately-owned entities (figures do not always match due to rounding). More than $48 billion of these investments are on U.S. government entity blacklists.
More than $152 billion of U.S. investment is in China’s state-owned enterprises. More than $47.8 billion of U.S. investments are in “Communist Chinese Military Companies (CCMC), and over $6 billion has a military end user. CCMC is a U.S. Department of Defense designation.
“The CCP’s opening of their financial markets is designed to fuel the strength of the Party and the country’s military-industrial complex, to underwrite the surveillance and repression of ethnic minorities in Xinjiang, and support other policies antithetical to U.S. national and economic security and moral interests,” Michael Wessel, commissioner of the U.S.-China Economic & Security Review Commission, wrote in an email.
U.S. investments in China include $646 billion into companies that have banned applications, such as Alibaba, Tencent, and Ant Group, according to the document. Other U.S. investments in China’s technology sector include over $220.9 billion in artificial intelligence, $88.9 billion in banking, $50.4 billion in biotechnology, $44.8 billion in data companies, $42.7 billion in telecommunications, $31 billion in pharmaceuticals, $20.8 billion in semiconductors, $6.1 billion in IT, $3.8 billion in surveillance, $1.3 billion in robotics, and $1.2 billion in aerospace and defense.
“The Biden administration must stop the greed and FOMO [fear of missing out] that governs investment into China on Wall Street, at State Pensions, and University endowments and force divestment from a regime that has been formally labeled as genocidal by the United States State Department,” investor Kyle Bass wrote electronically. “It is this schism that lies at the heart of the divide between the US Defense Department, the National Security Council, and ill-informed investors chasing the latest offering in Chinese markets.” Mr. Bass has in the past shorted Chinese and Hong Kong currencies.
The top 20 U.S. investors in China (including Hong Kong) entities are shown in Table 1. Blackrock is the biggest investor according to the government analysis, including over $155 billion invested in over 1,500 securities. JPMorgan Chase & Co. has over $140 billion invested in Chinese entities, and Vanguard Group has over $130 billion invested. Other household names in the top-20 list include Citigroup, Morgan Stanley, and Goldman Sachs.
“It makes absolutely no sense to invest in China, where there are no distinctions between commercial enterprises and the military sector, under the government’s military-civilian fusion strategy, especially when the government has made amply clear that China is our adversary and intends to take military action against the U.S. and our allies,” according to a Washington source. He said, “It is utterly absurd to invest in a country where the capital markets are not based on fundamentals but rather operate like casinos, and where investment gains are less than gains derived from the U.S. markets in the medium- to long-term. We need to re-examine who is driving our investment decisions and what those motivations might be. Economic viability and resiliency do not appear to be part of the calculus for these institutional investors.”
Christopher Moritz, who worked in Shanghai for a major investment bank and currently runs an investment consulting firm, raised issues that imply a potential conflict of interest among some officials in Washington. He wrote electronically that, “Blackrock’s position in Chinese equities is simply staggering, and all the more troubling in lieu of Blackrock’s deep ties to the Biden administration and the Democratic Party.”
He wrote, “Blackrock’s former Global Head of Sustainable Investing leads Biden’s National Economic Council. [The] former Chief of Staff to Larry Fink, is Deputy Secretary of the Treasury Department. Blackrock’s former Global Investment Strategist is the chief economic advisor to Kamala Harris. And yet, while Blackrock’s Larry Fink has prioritized ESG investing and social causes, Blackrock has nonetheless made massive investments in nefarious Chinese entities including China Merchant Bank and Hikvision.” Mr. Moritz said that both of these investments are on government blacklists.
Other big investors in Chinese securities include states and pension funds, as shown in Table 2. The biggest such investors are the State of California, with over $8.4 billion invested, along with Alaska Permanent Fund Corp with over $2 billion, and the Teacher Retirement System Texas with over $1.1 billion. Other U.S. states with major investments in China, in order of magnitude, include New York, New Jersey, Colorado, Wisconsin, Kentucky, Ohio, Pennsylvania, Florida, North Carolina, Utah, Oregon, and Illinois.
“CalPERS offers another disturbing example of U.S. financial institutions and indeed governmental institutions underwriting Chinese hegemonic ambitions from pension dollars,” wrote Mr. Moritz. “Out of the $8.4 billion in holdings of Chinese entities by the State of California, more than $850 million is in State-Owned Enterprises, especially banks involved in underwriting China’s BRI [Belt & Road Initiative] and also in telecommunications companies, which are at the forefront of China’s surveillance state. Until 2019, CalPERS’s chief investment officer was Yu Ben Meng, who had previously held the post of deputy chief investment officer of China’s State Administration of Foreign Exchange.”
Commissioner Wessel wrote, “The pace of U.S. investor funds going into China is expected to increase[,] undermining our ability to counter the threats the CCP’s policies pose to our country and values. It’s time to impose comprehensive restraints on the flow of funds and rein in the mercenary activities of Wall Street, private equity, and other investment interests.”
Americans are not selling the rope to China, with which it plans to hang us. We are paying them to make it. The U.S. government, including U.S. congressional leaders, should long ago have prioritized an end to any further U.S. and international investment in China, while recouping whatever possible despite China’s draconian capital controls.
Why haven’t our political leaders done so already? Are they too beholden to America’s most powerful investors, their campaign donations, and lobbying largesse? In that case, China would be paying Wall Street in the form of profit, and those investors would in turn be using that profit to influence the government to turn a blind eye to the continued bleeding of America.
Anders Corr has a bachelor’s/master’s in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He’s a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. He authored “The Concentration of Power” (forthcoming in 2021) and “No Trespassing,” and edited “Great Powers, Grand Strategies.”