Amid tensions with China, some US states are purging Chinese companies from their investments
JEFFERSON CITY, Missouri — As state treasurer, Vivek Malek pushed Missouri’s main pension system to divest from Chinese companies, making Missouri one of the first in the country to do so. Now Malek is touting Chinese divestment as he seeks re-election in an Aug. 6 Republican primary against challengers who also decry financial ties to China.
The race for Missouri’s Treasury secretary highlights a new aspect of the opposition to China, which has been presented as a major threat to the US by many candidates seeking election this year. Indiana and Florida have also restricted their public pension funds from investing in certain Chinese companies. Similar legislation targeting public investment in foreign opponents was vetoed in Arizona and proposed in Illinois and Oklahoma.
China is the world’s second largest economy after the US
According to a US government report, American pension funds and university endowments invested approximately $146 billion in China between 2018 and 2022. analysis by Future Uniona nonprofit pro-democracy group led by venture capitalist Andrew King. The report said that more than four-fifths of U.S. states have at least one public pension fund investing in China and Hong Kong,
“Frankly, there should be shame — more shame than there is now — to continue to have these kinds of investments at this point,” said King, who alleges that China has used intellectual property from American companies to make similar products that undercut market prices.
“This is a significant amount of money that, frankly, competes with the American ecosystem for technology and innovation,” King said.
However, some investment officials and economists have raised concerns that the emerging patchwork of state divestment policies could weaken investment returns for retirees.
“Most of these policies are unwise and would make American citizens poorer,” said Ben Powell, professor of economics and executive director of the Free Market Institute at Texas Tech University.
The National Association of State Retirement Administrators opposes state-mandated divestments, arguing that such orders should be issued by the federal government only against specific companies based on U.S. security or humanitarian interests.
The US Treasury Department recently a rule proposed Banning U.S. investors from funding artificial intelligence systems in China that could have military uses, such as targeting weapons. In May, President Joe Biden blocked a China-backed cryptocurrency mining company that owns land near a nuclear missile base in Wyoming, calling it a “national security risk.”
Yet this is not the first time that states have blacklisted certain investments. Numerous states, cities and universities pulled out of South Africa because of apartheid, before the U.S. Congress finally took action. Some states have also pulled out of tobacco companies because of health concerns.
Recently, several states have announced their withdrawal from Russia due to the war it is waging with Ukraine. But that has been difficult to be carried out for a number of public pension fund managers.
The quest to stop investment in Chinese companies comes as a growing number of states have also taken aim at Chinese ownership of American 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 legal challenge in Florida which prohibits Chinese citizens from purchasing real estate within 10 miles of military installations and critical infrastructure.
Divestment policies from state pensions are “part of a broader march toward more confrontation between China and the United States,” said Clark Packard, a fellow in trade policy studies at the libertarian Cato Institute. But “it makes it harder for the federal government to manage the overall relationship if we’re dealing with arbitrary state-level policies.”
Indiana last year 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, according to the Indiana Public Retirement System.
Missouri State Treasurer Malek tried last November to persuade fellow trustees of the Missouri State Employees’ Retirement System to divest from Chinese companies. After failing, he tried again in December and won approval for a plan that called for divestment over a 12-month period. Officials at the pension system did not respond to repeated questions from The Associated Press about the status of that divestment.
In recent weeks, Malek has emphasized Chinese divestment in campaign ads, claiming that fentanyl from China is “drugging our children” and vowing, “As long as I’m treasurer, they’re not getting any money from us. Not a cent.”
Two of Malek’s main challengers in the Republican primary — state Rep. Cody Smith and state Sen. Andrew Koenig — also support divestment from China.
Koenig said China is becoming less stable and “a riskier place to invest money.”
“In China, the line between public and private is much more blurred than it is in America,” Smith said. “So I don’t think we can fully know that when we invest in Chinese companies, we’re not also helping an enemy of the United States.”
A law signed earlier this year by Florida Gov. Ron DeSantis requires a state board that oversees the pension 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 entities, including banks, energy companies and alcohol companies, according to an analysis by Florida legislative staff.
Florida law already prohibits investments in certain companies with ties to Cuba, Iran, Sudan and Venezuela, or involved in an economic boycott of Israel.
In April, Arizona Gov. Katie Hobbs vetoed a bill that would have required divestment from companies in countries designated by the federal government as foreign adversaries. That list includes China, Cuba, Iran, North Korea, Russia and Venezuela.
Hobbs wrote in a letter to lawmakers that the measure “would be detrimental to Arizona’s economic growth as well as to the state’s investment portfolio.”