US States divesting from Chinese companies amid rising tensions
- In Reports
- 10:49 PM, Jul 25, 2024
- Myind Staff
As Missouri's state treasurer, Vivek Malek spearheaded efforts to have the State's primary retirement system withdraw its investments from Chinese companies, positioning Missouri as one of the first states to take such action. Now, Malek is highlighting this Chinese divestment initiative as he campaigns for reelection in the Republican primary on August 6, where he faces opponents who are also criticising financial ties with China.
The Missouri treasurer’s race underscores a growing trend in opposition to China, with many candidates this year identifying it as a major threat to the US. Indiana and Florida have also moved to restrict their public pension funds from investing in specific Chinese companies. Meanwhile, similar legislation aimed at curbing public investments in foreign adversaries was vetoed in Arizona and proposed in Illinois and Oklahoma.
China, the world's second-largest economy after the US continues to be a focal point in these political debates.
Between 2018 and 2022, US public pension funds and university endowments invested approximately $146 billion in China, according to an analysis by Future Union, a nonprofit pro-democracy organisation led by venture capitalist Andrew King. The report indicates that over 80% of US states have at least one public pension fund with investments in China and Hong Kong.
“Frankly, there should be a shame — more shame than there is — for continuing to have those investments at this point in time,” said King, who asserts that China has used intellectual property from US companies to make similar products that undercut market prices.
”You’re talking a considerable amount of money that frankly is competing against the U.S. technology and innovation ecosystem,” King said.
However, some investment officials and economists have expressed concerns that the growing patchwork of state divestment policies might undermine investment returns for retirees.
“Most of these policies are unwise and would make US citizens poorer,” said Ben Powell, an economics professor who is executive director of the Free Market Institute at Texas Tech University.
The National Association of State Retirement Administrators argues against state-mandated divestments, suggesting that such actions should be directed by the federal government and based on specific US security or humanitarian concerns.
Recently, the U.S. Treasury Department proposed a rule to prevent American investors from funding artificial intelligence systems in China that could be used for military purposes, such as targeting weapons. Additionally, in May, President Joe Biden blocked a Chinese-backed cryptocurrency mining firm from acquiring land near a Wyoming nuclear missile base, citing it as a “national security risk.”
States have a history of targeting specific investments. For instance, many states, cities, and universities have divested from South Africa during apartheid before the US Congress acted. Similarly, some states have divested from tobacco companies due to health concerns.
More recently, some states have moved to divest from Russia in response to its war against Ukraine, though implementing these measures has proven challenging for some public pension fund administrators.
The drive to end investments in Chinese companies coincides with a growing number of states targeting Chinese ownership of US land. According to the National Agricultural Law Centre at the University of Arkansas, two dozen states have enacted laws restricting foreign ownership of agricultural land. Some of these laws are broader, such as a Florida measure currently under legal challenge that prohibits Chinese citizens from purchasing property within 10 miles (16 kilometers) of military installations and critical infrastructure.
Clark Packard, a research fellow for trade policy studies at the libertarian Cato Institute, notes that state pension divestment policies reflect a larger trend toward increased confrontation between the US and China. However, he points out that such fragmented state-level policies complicate the federal government’s ability to manage the overall relationship with China.
Last year, Indiana became the first state to require its 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, with $486 million subject to divestment. By the following year, its investment exposure in China had decreased to $314 million, with only $700,000 still under the divestment requirement, according to the Indiana Public Retirement System.
Last November, Missouri State Treasurer Malek attempted to persuade the trustees of the Missouri State Employees’ Retirement System to divest from Chinese companies. After his initial effort failed, he made another attempt in December, successfully securing approval for a plan that mandates divestment over a 12-month period. However, officials at the retirement system have not responded to repeated inquiries from The Associated Press regarding the current status of the divestment.
Recently, Malek has emphasised the Chinese divestment effort in his campaign ads, claiming that fentanyl from China “is drugging our kids” and pledging, “As long as I’m treasurer, they won’t get money from us. Not one penny.”
Two of Malek’s leading Republican primary opponents—State Rep. Cody Smith and State Sen. Andrew Koenig—also advocate for divestment from China. Koenig argues that China is becoming increasingly unstable and “a more risky place to invest.” Smith adds, “In China, the line between public and private is much blurrier than in America. Therefore, we can’t be sure that investing in Chinese companies doesn’t also mean aiding an enemy of the United States.”
Earlier this year, Florida Gov. Ron DeSantis signed a law requiring a state board overseeing the retirement system to develop a plan by September 1 to divest from companies owned by China. The oversight board had announced in March 2022 that it would halt new investments in Chinese entities. As of May, it still held approximately $277 million in Chinese-owned assets, including banks, energy firms, and alcohol companies, according to Florida legislative staff analysis.
Florida law already prohibits investments in certain companies connected to Cuba, Iran, Sudan, Venezuela, or those participating in economic boycotts against Israel.
In contrast, Arizona Governor Katie Hobbs vetoed a bill in April that would have mandated divestment from companies in countries deemed foreign adversaries by the federal government, including China, Cuba, Iran, North Korea, Russia, and Venezuela. Hobbs stated in a letter to lawmakers that the measure “would be detrimental to the economic growth Arizona is experiencing as well as the State’s investment portfolio.”
Image source: AP News
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