Blackrock, MSCI Under Congressional Scrutiny for Investments in Chinese Companies Blacklisted by the US

Edited by: TJVNews.com

Congressional scrutiny is intensifying on BlackRock, the world’s largest asset manager, and MSCI, a major provider of index funds, over their investments in Chinese companies blacklisted by the US government for security and human rights concerns, as was reported on Wednesday by CNN. The Select Committee on the Chinese Communist Party of the House of Representatives is investigating whether these firms are unknowingly investing Americans’ savings in companies that have ties to the Chinese military and human rights abuses.

CNN reported that the committee alleges that by investing Americans’ savings in Chinese companies linked to the People’s Liberation Army (PLA) and human rights abuses, BlackRock and MSCI are exacerbating national security threats and undermining American values. The investigation found that BlackRock had invested over $429 million across five funds in Chinese companies that act against US interests, the CNN report said. Additionally, at least 40 companies listed on the MSCI indexes are designated on governmental red-flag lists.

Letters were sent to BlackRock CEO Larry Fink and MSCI CEO Henry Fernandez, notifying them of the investigation and the Committee’s concerns, the CNN report said. The Committee’s Chairman, Republican Rep. Mike Gallagher of Wisconsin, and its ranking member, Democrat Rep. Raja Krishnamoorthi of Illinois, accused both firms of indirectly funding Chinese companies that develop weapons for the People’s Liberation Army and support the Chinese Communist Party’s mission of technological supremacy.

In response, BlackRock stated that the majority of their clients’ investments in China are through index funds and that they comply with all applicable US government laws, as was reported by CNN. MSCI also asserted its compliance with US laws and said it is reviewing the committee’s request for information.

Blackrock said in a statement that it has engaged the committee directly to better understand its concerns. “The majority of our clients’ investments in China are through index funds, and we are one of 16 asset managers currently offering U.S. index funds investing in Chinese companies,” it added, as was reported by the Wall Street Journal.

In a statement MSCI said it’s reviewing the committee’s inquiry, according to the WSJ report. It has previously said that all of its index decisions are made after consultations with a range of global market participants.

Tensions between the US and China have been escalating on various fronts, from trade policy to geopolitical conflicts. The CNN report also indicated that the Biden administration has imposed export controls on Chinese companies, particularly in the semiconductor industry, citing national security interests. Last month, China imposed export controls on strategic raw materials essential to the global chipmaking industry, highlighting the importance of the semiconductor sector in the ongoing geopolitical conflict.

The Select Committee on the Chinese Communist Party, established earlier this year, has subpoena power and makes policy recommendations. While it does not write legislation, its investigations can have significant implications. CNN reported that the committee previously launched an investigation into US venture-capital firms funding Chinese artificial intelligence and semiconductor efforts.

Like the Jan. 6^th select committee that investigated the 2021 attack on the US Capitol, the China panel aims to build a narrative in a way that is accessible to the public, according to the Wall Street Joural report.

Last week, the Senate made progress on passing potential legislation that would require certain U.S. entities to notify the Treasury Department of investments in sensitive technologies in adversary countries such as China, the WSJ report added. Lobbying from the business community has so far quashed attempts to review or block such investments.

The WSJ report also said that the China committee in July launched an investigation into U.S. venture-capital firms funding Chinese artificial-intelligence, semiconductor and quantum-computing startups.

The White House and a bipartisan coalition in Congress have deemed such investments especially harmful because of the operational expertise and critical relationships the U.S. venture capitalists offer their targets. The WSJ report indicated.

The latest investigation involving BlackRock and MSCI broadens the scope of the committee’s probe significantly. CNN reported that BlackRock, managing over $9 trillion in assets, and MSCI, benchmarking over $13 trillion, have been asked to provide answers regarding their investments in the flagged companies by August 14^th.

Chairman Mike Gallagher has threatened to subpoena executives who do not cooperate with the investigations.

The scale of investment in these companies is likely to be much larger than initially flagged, according to the Committee’s letters. CNN reported that the investigation has gained attention and was first reported by the Wall Street Journal. As the investigation unfolds, it will shed light on the involvement of major financial players in China’s economy and its potential implications on national security and human rights issues.