WASHINGTON – The Coalition for a Prosperous America (CPA) supports a trio of bills announced by Sen. Rick Scott (R-FL) on Wednesday that make it harder for Wall Street to invest in China.
Senator Scott’s three bills go after China securities in different ways.
- S.4589 would prohibit index funds and registered investment companies from investing in Chinese companies;
- S.4586 would restrict investments in China “A-Shares”; and
- S.4590 would prohibit publicly traded companies on government Entity Lists like the Uyghur Forced Labor list from being allowed to IPO and list their securities on U.S. exchanges.
“The CCP’s weaponization of U.S. capital markets and American retail investors to fund its malign activities is only possible because of Wall Street firms’ fiduciary malfeasance and complicity,” said Zach Mottl, Chairman of the CPA Board. “Wall Street is directly helping Beijing raise capital for Chinese military and forced labor firms—undermining U.S. national and economic security, the integrity of our capital markets, and putting US firms who comply with existing securities laws at a disadvantage to raise capital. Senator Scott’s legislative package represents the most comprehensive solution to putting an end to this threat.”
American citizens invest untold billions in China stocks and bonds. For example, BlackRock’s iShares China Large Cap exchange traded fund (FXI) has $4.76 billion invested in mainland China equities. That fund is mostly held by American investors, including small retail investors with online brokerage accounts.
This year began with American investors buying nearly $12 billion of Chinese stocks in one week back in January, the largest capital flow into China equity funds since 2015 when investing in China was all the rage.
Worth noting, while U.S. investors pour billions into the Chinese economy, Chinese investors are not allowed to invest in the U.S. at the same rate due to capital controls there.
The U.S. investor is funding what the Director of National Intelligence continues to refer to in its Annual Threat Assessment reports as the country’s biggest national security and economic security threat.
CPA supported the Biden administration’s capital market sanctions regime against dozens of Chinese defense contractors, banning Wall Street from owning their Shanghai and Shenzhen listed shares, also known as the A-shares. (H-shares are China stocks listed in Hong Kong.)
But more can be done here. Numerous companies facing capital market sanctions also own subsidiaries traded in China and they face no investment bans. Moreover, companies targeted by the Defense Department, Treasury, and Homeland Security are still permitted access to American capital. Senator Scott’s bill No. 4590 addresses this issue.
In May, CPA published a report on BlackRock and MSCI indexes that detailed some of the Chinese defense companies still open to investment.
“The callous disregard for national security and human rights-related risk — much less the abuses of these Chinese corporate bad actors — together with the lack of fiduciary responsibility and diligence on display in this report is very troubling. It’s clear that Congress now has no alternative but to make these kinds of reckless investments by American asset managers illegal to protect our country, fundamental values and retail U.S. investors,” said Roger W. Robinson, former Chairman of the Congressional U.S.-China Economic and Security Review Commission.
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