Vanguard Funds Invest in Chinese Military Companies, Report Says

J15 fighter jets on China's sole operational aircraft carrier, the Liaoning, during a drill at sea on April 24, 2018. AFP via Getty Images

The Vanguard Group, one of the world’s largest asset managers, invests through index funds in Chinese military groups and companies linked to forced labor, according to a new report released as the U.S. Treasury Department is finalizing rules pertaining to a White House executive order that prohibits certain investments to China.

Vanguard’s $70 billion flagship emerging markets index fund includes 60 companies on the Chinese military company sanction list by the Treasury Department’s Office of Foreign Assets Control (OFAC), the report released by the Coalition for a Prosperous America (CPA) on Oct. 13 says.

The CPA is an advocacy organization that exclusively represents U.S.-based manufacturers, workers, farmers, and ranchers.

In addition, Vanguard funds also hold shares of eight Chinese companies sanctioned over human rights abuses in China’s Xinjiang region, where the persecution of Uyghurs has been identified by the U.S. State Department as “genocide.”

The report didn’t provide a tally of all Vanguard investments in Chinese military companies but listed a total of $100 million in three such groups.

While noting that Vanguard’s fund holdings are legal, the CPA urged Congress to take urgent action on the “long-festering, structural problem” that “a weak public policy response by the U.S. government has allowed greed within the asset management industry to supersede urgent American investor protection, national security, and human rights concerns.”

“Congress must turn off the tap of American capital flowing to China and stop private and public market investments into blacklisted CCP-connected companies,” Rep. Mike Gallagher (R-Wis.), chair of the House Select Committee on the Chinese Communist Party (CCP), told The Epoch Times in an emailed statement.

“Americans do not want firms like Vanguard and BlackRock to invest their retirement savings in companies building the Chinese Communist Party’s military and implementing its ongoing genocide against the Uyghur people,“ he added. ”If we accept the status quo, we are willfully fueling our own destruction.”

Congressional scrutiny over Wall Street’s role in financing Chinese military companies has been increasing.

Three months ago, the committee led by Mr. Gallagher opened an investigation into BlackRock, another leading asset manager, and global index provider MSCI over their role in channeling money to Chinese companies involved in building weapons for the Chinese military. The committee estimated $429 million of such investments against American interests by BlackRock.

In a letter dated July 31 to BlackRock and MSCI, Mr. Gallagher and committee ranking member Rep. Raja Krishnamoorthi (D-Ill.) wrote that, through the companies’ funds, Americans were “unwittingly funding” Chinese companies that fuel the CCP’s military and the two companies were “exacerbating an already significant national security threat and undermining American values.”

Two months later, BlackRock closed its China-focused offshore fund. All shareholders would have to redeem any outstanding shares by Nov. 7 before the fund’s liquidation. BlackRock previously told The Epoch Times that its products “comply with all applicable U.S. government laws” and it’s one of 16 asset managers offering U.S. index funds with investment in Chinese companies. The company didn’t directly comment on the closure of the China fund.

“Vanguard maintains the highest levels of compliance with all applicable laws and regulations, including sanctions law,“ a Vanguard spokesperson told The Epoch Times in an emailed response. ”We welcome additional clarity from policymakers who are in a position to determine sanctions through the formal OFAC process.

“As one of many asset managers offering investors a range of funds to invest internationally, our clients’ investments in China are primarily through U.S.-based passive index products that provide diversified exposure to many developed and emerging economies.”

In August, President Joe Biden issued an executive order that prohibited U.S. outbound investments to China in industries such as semiconductors and quantum computing. The Treasury Department has published preliminary rules, which listed index funds as excepted transactions under the executive order. The public commentary period closed on Sept. 28.