A recent report released by the bipartisan House Select Committee on the Strategic Competition between the U.S. and the CCP has shed light on the flow of investment dollars from U.S. financial markets to Chinese companies that have been blacklisted by the U.S. government due to their links to the Chinese Communist Party's military modernization efforts and human rights abuses.
According to the committee's findings, asset managers and index providers have facilitated the investment of over $6.5 billion into 63 Chinese companies that have been blacklisted or red-flagged by the U.S. government. These companies are involved in the development of advanced military technology for the PLA and the perpetration of human rights violations against the Uyghur people.
While this activity is not illegal under current regulations, the committee has called for Congress to take action to restrict U.S. investment in entities tied to the CCP, the PLA, critical technology sectors, or forced labor and genocide. The report highlights the role of index providers like MSCI and asset managers like BlackRock and Vanguard in creating investment products that include blacklisted Chinese firms.
In response to the report, financial firms like BlackRock, MSCI, and Vanguard have emphasized their compliance with applicable U.S. laws and regulations. They have stated that they will assess and adapt to any new regulations or compliance measures laid out by policymakers regarding investment in China.
The committee has recommended three policies for Congress to address the shortcomings of current restrictions on investment in Chinese companies, including restricting investment in blacklisted companies and requiring disclosure of key risks related to investments in PRC securities. The goal is to ensure that U.S. investors are aware of the risks associated with investing in Chinese firms that have been implicated in human rights abuses and national security risks.
Overall, the report underscores the need for greater transparency and oversight in U.S. financial markets to prevent American investors' funds from supporting the military modernization and human rights abuses of a foreign adversary. It calls for a collaborative effort between Congress and the Administration to establish clear rules for U.S. investors and mitigate the risks associated with investing in Chinese companies with questionable ties to the CCP.