‘This is not a place where we should be investing U.S. dollars, and especially U.S. pension dollars,’ Montana’s attorney general said.
Attorneys general from 17 states issued a warning letter to BlackRock and other fund managers, alleging that they failed to fully disclose the risks for clients investing in Chinese companies.
The
letter, dated Feb. 6, was issued to BlackRock, State Street, Invesco, Morgan Stanley, JPMorgan and Goldman Sachs.
The attorneys general stated that they were “particularly concerned about BlackRock’s material misstatements and omissions, as BlackRock is the largest issuer of emerging market ETFs and China ETFs.” Specifically, the attorneys general wrote that “China is a statutorily designated foreign adversary of the U.S. and has threatened to invade Taiwan,” yet BlackRock has implied that investments in China were at the same risk level as those in other countries.
“China is an overt stated enemy of the United States, and that’s not from our government, that’s from their government, their internal military documents,” Montana Attorney General Austin Knudsen, who led the effort, told The Epoch Times.
“This is a country that does not have our best interests at heart, that’s been engaged in asymmetric warfare against the U.S. for decades, that’s been engaged in massive intellectual property theft against our country, and espionage,” he said. “This is not a place where we should be investing U.S. dollars, and especially U.S. pension dollars.”
In their letter, the attorneys general also alleged that “BlackRock euphemistically refers to Uyghur forced labor and genocide as ‘religious and nationalist disputes,’ and gives its China fund the same ESG [environmental, social and governance] letter grade as for its U.S. small-cap stocks fund, despite China’s dismal performance on ESG.” The other asset managers who received the letter “similarly misrepresent or conceal the material risks of Chinese investments,” the attorneys general wrote.
BlackRock disputed the allegations,
posting on X on Feb. 7 that the attorneys general were “wrong in at least three significant claims about our China disclosures, all of which are publicly available.” The asset manager noted its statements that “China has a complex territorial dispute regarding the sovereignty of Taiwan and has made threats of invasion”; that investing in China risks, among other things, “expropriation, nationalization, confiscation of assets and property”; and that accounting and auditing practices in China “may be less reliable.”
Federal pension funds appear to be stepping back from investing in China, but insiders say that many state pension funds are still heavily exposed and may not completely know or understand the extent of it.
The state attorneys general note that the Federal Retirement Thrift Investment Board, which administers retirement savings for federal workers and members of the military, has shifted its emerging market investments to an index that excludes China and Hong Kong. Some states are also starting to move in this direction.
In November 2024, 20 state financial officers called on public pension funds to divest from China, and Texas Gov. Greg Abbott has ordered state fund managers to divest from China as soon as possible, the attorneys general stated.
However, U.S. investors’ exposure remains high, experts say.
“We go and look at [state investment] filings, and we find Chinese investments in probably most state pension funds,” Michael Lucci, founder of State Armor, a nonprofit that advises states on security threats, told The Epoch Times. “For example, the state of Washington—I’ve downloaded their investment holdings, and they’ve got about $5 billion in China, including a whole bunch of blacklisted Chinese military companies, blacklisted by the U.S. Department of Defense.”
Lucci said he found similar investments in New York and California pension funds. Rather than investing directly in Chinese companies, he said, what’s more typical is that states invest in emerging markets index funds that in turn have large percentages going to China.
He cites, for example, the
MSCI Emerging Markets Index, of which 27 percent is Chinese investments even though the index broadly tracks 24 emerging market countries. It includes Chinese multinationals Tencent Holdings, its second largest component, and Alibaba, its third largest. It also includes Chinese firms Meituan, China Construction, and PDD Holdings among its top 10 investments.
In January, the U.S. Defense Department
named Tencent, a games and technology company, together with more than 100 other Chinese companies, as a “Chinese Military Company.” It has added dozens of Chinese companies, including artificial intelligence firm SenseTime and the world’s biggest battery maker CATL, to a list of companies it says have ties to China’s military. This designation caused the shares of Tencent to
drop 8 percent overnight.
Lucci estimates that U.S. states have $100 billion to $200 billion of investment exposure to China.
In addition, a 2024 report by
Future Union, a bipartisan nonprofit, stated that despite growing tensions between the United States and China, public pension funds have invested more than $68 billion in China since 2020.
One cited cause for more foreign investments flowing into China is that Russia has been embargoed since its invasion of Ukraine, leaving many U.S. pension funds
scrambling to divest from their Russian assets in 2022. This also speaks to the risk of viewing China as an alternative, given its explicit threats of invading Taiwan.
The Future Union report states that while most municipal pension funds have investments in China, “more alarming is the recency, as 29 of 74 have made investments in the past 12 months (39 percent), and 56 of 74 of public pension funds with previous investments have made follow-up investments in the past 36 months: a staggering 75 percent rate by pension portfolio managers entrusted to manage the vast majority of the wealth of pensioners in the U.S.”
Regarding possible future legal actions on China disclosures, Knudsen said: “Stay tuned. Republican attorneys general across the country are watching this one very, very closely.”
