WASHINGTON — The Coalition for a Prosperous (CPA) urged Treasury Secretary Janet L. Yellen to take action to protect U.S. retail investors and pensioners from risky, dangerous Chinese A-share companies that are available via certain investment products like Exchange Traded Funds (ETFs) and other index funds. In December 2020, Congress passed the Holding Foreign Companies Accountable Act (P.L. 116-222), which protects U.S. investors by prohibiting securities of a Chinese and other foreign companies from being listed on any of the U.S. securities exchanges if the company has failed to comply with the Public Company Accounting and Oversight Board’s (PCAOB) audits for three consecutive years. However, this law does not address more than 4,200 Chinese A-share companies, including ones that have been sanctioned by the U.S. government for egregious human rights violations and posing a direct threat to U.S. national security.
“It is a fact that U.S. investors are inadvertently funding Chinese companies involved in activities contrary to the national security, economic security, and human rights interests of the United States,” the letter states. “Currently, there are over 4,200 A-share companies in American passive investment products that are not subject to U.S. securities laws and regulations for adequate investor protection and transparency purposes. The vast majority of American investors are unaware that, for example, their Exchange-Traded Funds (ETF) or mutual fund portfolios include exposure to China A-share companies that are not compliant with U.S. securities laws and, in a number of cases, have been sanctioned by the U.S. government for egregious human rights and national security abuses. Americans should not be unwittingly financing U.S.-sanctioned Chinese companies — period.”
Last week, CPA urged U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler to prohibit inclusion of certain Chinese companies in indices, Exchange-Traded Funds (ETFs), and other index funds provided by American index providers and asset managers.
CPA’s letter outlines how “Retail and institutional investors are exposed to a wide range of publicly traded Chinese companies involved in: developing advanced weapons systems for the PLA, its Navy and Air Force, which threaten its regional neighbors and freedom of navigation in international waters; building and militarizing illegal islands in the South China Sea; facilitating the ongoing genocide of Uyghurs and other Turkic Muslims in Xinjiang; the systematic intimidation and coercive assimilation of Tibetans; the mass surveillance and government interference in people’s lives in Hong Kong; the equipping of concentration camps; the international economic coercion of other nations via the Belt and Road Initiative; and the corporate trafficking in slave labor.”
Last year, CPA wrote to BlackRock CEO Larry Fink urging him to stop aiding and abetting human rights abuses and national security risks associated by including Chinese companies in BlackRock’s iShares ETFs. BlackRock, which is the world’s largest asset manager, surprisingly recommended last year that investors triple their allocations in Chinese assets.
“Today, index providers exercise virtually unchecked authority over which Chinese companies they include as constituents in their indices, especially A-share companies,” the letter continues. “This glaring lapse in U.S. regulatory authority is largely responsible for the gross fiduciary malfeasance outlined in this correspondence.”
Read CPA’s full letter here.