Aside from a number of geopolitical risks, particular challenges with investing in Chinese companies are that some pose national security concerns or may be complicit in human rights violations. They have also been criticized for not being transparent in their financial reporting, and according to Chinese law, may be called upon to serve the needs of the Chinese Communist Party (CCP) at any time.
Another issue is barriers to liquidating investments in China and repatriating the funds.
“The most recent change in tone and aggression of the Beijing government would cause any board to be reviewing its risk analysis,” Liberal MP John McKay told The Epoch Times.
“It’s a far riskier investment. I don’t know how you can arrive with any other conclusion,” he added. “The political risk has changed, so also has the investment risk.”
Questionable Choices
The CPPIB said in 2018 that it aimed to ramp up investments in China to 20 percent by 2025, even as annual Canadian investment in China has been declining since peaking in 2008.The CPPIB reported nearly $15 billion (4 percent of the fund) is held in Chinese currency—the renminbi—in its 2020 annual report.
In its annual report, the CPPIB highlighted a US$375 million investment in Tencent Music Entertainment Group, an online music platform operator in China.
Conservative MP Garnett Genuis said some checks are needed to ensure that the investments don’t support a company that violates human rights.
“When Canadians have their automatic pension contributions made, they don’t want their money to be put into gross violations of human rights against their will,” he said in a March 16 interview with The Epoch Times.
Genuis said he could invite the pension board to one of the Special Committee on Canada-China Relations parliamentary meetings.
“That’s something we can explore, because we need to make sure that these things aren’t happening and don’t happen again in China and in other places as well.”
Both companies are on the U.S. Department of Commerce’s entity list—a list of parties deemed to pose a major risk to national security or foreign policy interests.
The CPPIB told The Epoch Times that they decline to comment when asked if it owns stock in those two Chinese companies.
It was also a major participant in Baixin Bank’s recent stock issuance, according to Chinese media.
“Despite four decades of promised liberalization, the Communist Party-state retains the ability to intervene decisively in China’s banking system to achieve desired outcomes,” begins the report’s summary.
‘House of Cards’
Beijing desperately wants to hold on to U.S. dollars to buy raw materials and make overseas purchases.Coinciding with more Chinese nationals and foreign businesses wanting to move money out of China, foreign lenders are less willing to supply U.S. dollars to the slowing Chinese economy. And by design, the Sino-U.S. trade war doesn’t help China either as it impairs the country’s ability to export to the United States and receive dollars.
The renminbi is not far from its weakest level against the U.S. dollar since early 2008. It is caught in a vicious circle as authorities try to stimulate the economy by lowering interest rates, which also reduces the currency’s value.
“And so, this is what I worry about: Our pensions and all of the money that China has figured out how to coerce MSCI [Morgan Stanley Capital International] and the various index providers … to weigh China so heavily,” he said.
Bass has long been critical of foreign investments in China propping up the communist state’s economy.
“The investments are clearly at risk of increased scrutiny by the government Beijing. And that will never go well for the investor,” McKay said. “It’s not expropriation, but it is a subtle assertion of power and control over reasonable expectations.”
The Canadian Chamber of Commerce told The Epoch Times that its members hadn’t raised the issue of trouble repatriating funds from China thus far.