America

Amid US-China tensions, some states purge Chinese companies from their investments

Amid US-China tensions, some states purge Chinese companies from their investments

As state treasurer, Vivek Malek pushed Missouri’s largest retirement system to divest from Chinese companies, making Missouri one of the first in the nation to do so.

Now Malek is promoting Chinese divestment as he seeks re-election in the Aug. 6 Republican primary against rivals who also allege financial connections to China.

The race for Missouri treasurer highlights a new facet of opposition to China, which many candidates seeking election this year have cast as a top threat to the United States.

Indiana and Florida have also restricted their public pension funds from investing in certain Chinese companies. Similar legislation targeting public investments in foreign adversaries was vetoed in Arizona and proposed in Illinois and Oklahoma.

China is the second largest economy in the world behind the United States.

Between 2018 and 2022, U.S. public pension and university endowments invested about $146 billion in China, according to a Future Union analysisa pro-democracy nonprofit group led by venture capitalist Andrew King.

The report says more than four-fifths of US states have at least one public pension fund investing in China and Hong Kong.

“Frankly, it should be embarrassing – more embarrassing than it is – to continue to have those investments at this point,” said King, who claims China has used intellectual property from U.S. companies to make similar products that undercut market prices.

“This is a significant amount of money that, frankly, is competing against the U.S. technology and innovation ecosystem,” King said.

But some investment officials and economists have expressed concern that the emerging patchwork of state divestment policies could weaken investment returns for retirees.

“Most of these policies are reckless and would make American citizens poorer,” said Ben Powell, an economics professor and executive director of the Free Market Institute at Texas Tech University.

The National Association of State Retirement Administrators opposes state-ordered divestments, saying such orders should come only from the federal government against specific companies based on U.S. humanitarian or security interests.

The U.S. Treasury Department recently proposed a rule banning U.S. investors from funding artificial intelligence systems in China that could have military uses, such as weapons targeting.

In May, President Joe Biden blocked a Chinese-backed cryptocurrency mining company from owning land near a nuclear missile base in Wyoming, calling it a “national security risk.”

However, this is not the first time that states have blacklisted certain investments. Numerous states, cities and universities divested from South Africa because of apartheid before the US Congress finally took action. Some states have also divested from tobacco companies for health reasons.

Recently, some states have announced a divestment from Russia due to its war with Ukraine. But this has been difficult for some public pension fund managers to carry out.

The quest to halt investments in Chinese companies comes as a growing number of states have also taken aim at Chinese ownership of U.S. land.

Two dozen states now have laws restricting foreign ownership of farmland, according to the National Agricultural Law Center at the University of Arkansas. Some laws apply more broadly, such as one facing a legal challenge in Florida that bars Chinese citizens from buying property within 10 miles (16 kilometers) of military installations and critical infrastructure.

State pension divestment policies are “part of a broader path toward greater confrontation between China and the United States,” said Clark Packard, a trade policy research fellow at the libertarian Cato Institute. But “it’s harder for the federal government to manage the overall relationship if we have to deal with dispersed policy at the state level.”

Last year, Indiana became the first to enact a law requiring the state’s public pension system to gradually divest from certain Chinese companies.

As of March 31, 2023, the system had about $1.2 billion invested in Chinese entities, of which $486 million was subject to the divestment requirement. A year later, its investment exposure to China had fallen to $314 million, with only $700,000 still subject to divestment, the Indiana Public Retirement System said.

A law signed earlier this year by Florida Gov. Ron DeSantis requires a state board that oversees the retirement system to develop a plan by Sept. 1 to divest from Chinese-owned companies.

The oversight board had announced in March 2022 that it would stop making new Chinese investments. As of May, it still had about $277 million invested in Chinese-owned entities, including banks, energy companies and alcohol firms, according to an analysis by Florida legislative staff.

Florida law already prohibits investment in certain companies linked to Cuba, Iran, Sudan, Venezuela or those involved in an economic boycott against Israel.

In April, Arizona Gov. Katie Hobbs vetoed a bill that would have required companies to divest from countries the federal government considered foreign adversaries. That list includes China, Cuba, Iran, North Korea, Russia and Venezuela.

Hobbs said in a letter to lawmakers that the measure “would be detrimental to the economic growth Arizona is experiencing as well as the state’s investment portfolio.”

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