The TSP’s Mutual Fund Window is a Back Door for Chinese Stocks

By Robby Stephany Saunders

The Chinese language abounds with timeless proverbs, but “don’t bite the hand that feeds you” is not one of them.

Shortly after threatening “forceful measures” if former House Speaker Nancy Pelosi visited Taiwan last year, Beijing warned Capitol Hill of “counter-measures” if it approved a one-billion-dollar arms package for the outgunned island.  And last fall, China’s representative to the United Nations gave notice that interfering with plans to unify the democratic island and communist mainland would lead to “severe consequences.”

Beijing’s rhetoric has become so abusive that most Members of Congress might not recognize the biggest foreign backer of China’s defense industrial complex—their own constituents. Billions of dollars have flowed from the retirement accounts of unwitting American workers to Chinese defense contractors because of “benchmarks” that determine the composition of the largest international stock indexes. Invested in a target-date fund managed by Vanguard or BlackRock? Congratulations. You probably own part of a Chinese Communist defense company.

The problem is so pervasive that U.S. military personnel can now invest part of their retirement funds into Chinese companies building the weapon systems they may face in a war over Taiwan.

Congressional leaders are aware of the issue but have avoided a public debate. The powerful House Rules Committee last year disallowed floor amendments to the national defense authorization act designed to prevent Thrift Savings Plan “TSP” investors from accessing mutual funds that include Chinese defense firms the Pentagon has identified by name.

According to data published by CPA, and that was reported on by The Wall Street Journal and Newsweek, the TSP has serious exposure to companies owned or controlled by the Chinese Communist Party (CCP). As such, “[m]illions of federal employees can invest in Chinese companies sanctioned by the U.S. government via its flagship retirement plan, even though these companies have been branded a danger to national security or are accused of profiting from forced labor or other human rights abuses.” Shockingly, the Federal Retirement Thrift Investment Board (FRTIB), which is in charge of managing the TSP, admitted publicly that it has not conducted any due diligence to evaluate whether the TSP and the products it offers in its Mutual Fund Window include Chinese-owned entities that pose national security risks or fund Chinese companies engaged in human rights violations.

The see-no-evil mindset in Congress mirrors the years before the Second World War, when American financiers supplied Nazi Germany with industrial materials, energy supplies, and funds. Not until months after Berlin declared war on Washington did the federal government seize businesses operating in violation of the Trading with the Enemy Act. If the U.S. finds itself in a shooting war with China, the main difference this time will be that Wall Street used index funds instead of steamships to supply America’s chief adversary.

On June 17, 2022, The People’s Liberation Army Navy (PLAN) successfully launched its third aircraft carrier from Shanghai’s Jiangnan Shipyard. The new carrier enables PLAN to launch a wider variety of aircraft and is reportedly equipped with technology furthering PLAN blue water naval capabilities. Jiangnan Shipyard, where the Fujian was built, is a commercial and naval shipbuilding facility. Jiangnan was wholly acquired in 2019 as a subsidiary of China State Shipbuilding Corporation Holdings Limited (CSSC Holdings Ltd.). CSSC Holdings Ltd. (SHA:600150) is the publicly-traded arm of China State Shipbuilding Corporation Ltd. (CSSC) (中国船舶工业集团有限公司), a Chinese state-owned enterprise carrying out shipbuilding and repairs for cargo customers and PLAN military vessels, and is included in some of the world’s most prominent investment indices. Foreign capital flowing into Jiangnan Shipyard directly via its commercial business or indirectly via CSSC Holding Ltd securities, may both directly and indirectly support PLAN modernization.

Development of the PLAN’s fourth aircraft carrier is reportedly underway at Jiangnan shipyard, with the carrier’s launch expected between 2025 and 2027.

CSSC was designated as a Non-SDN Chinese Military Industrial Complex Company (NS-CMIC) on June 3, 2021. This listing, under Executive Order 13959 (as amended by President Biden in Executive Order 14032), prohibits US persons from purchasing or selling any securities of companies deemed to be supporting China’s military-industrial base. This prohibition does not apply to subsidiaries, like CSSC Holding Ltd. or Jiangnan Shipyard, that are not also explicitly designated by the Treasury Department’s Office of Foreign Assets Control (OFAC). Correspondingly, CSSC was designated by the Department of Defense, as a Chinese Military Company operating directly or indirectly in the United States by the Biden Administration in June 2021, in accordance with the FY21 NDAA’s section 1260H.

As of June 2022, CSSC Holdings Ltd. was listed as a constituent of the MSCI Emerging Markets, MSCI ACWI, FTSE Emerging, and FTSE All-World indices. These indices are tracked by trillions of dollars of assets under management globally, for example, through the associated Exchange-traded funds (ETFs). The primary ETF providers include Blackrock’s iShares products and Vanguard’s UCITS products, respectively.

In addition to issuing yuan-bonds, as of 2015, the CSSC corporate family has raised nearly $2.6 billion through euro and dollar-denominated debt placement via markets such as the US Over-the-Counter market, Frankfurt, and Bank Sarasin (Switzerland) markets and JP Morgan bond-focused ETFs, among other debt markets. Nearly all of which were underwritten by Western banks, most commonly Barclays and Société Générale. Four of CSSC’s euro- and dollar-bonds have yet to mature:

Another example is Aviation Industry Corporation of China (AVIC) and subsidiaries:

AVIC is one of China’s largest defense contractors at $66.96 billion. AVIC manufactures military planes, among other aviation products. For comparison, Lockheed

Martin is valued at $67 billion. AVIC is present in the following investment products, which are also on offer to federal government workers through their retirement system’s “Mutual Fund Window”: Fidelity Emerging Markets Index Fund (FPADX): China Weight 29%; State Street Emerging Markets Equity Index Fund (SSKEX): China Weight 27%; BlackRock iShares MSCI Total International Index Fund (BDOKX): China Weight 14%; Vanguard Emerging Markets Stock Index Fund (VEMAX): China Weight 33%; and DFA Emerging Markets Core Equity I (DFCEX): China Weight 31%.

Frustrated with capital flows to China, a handful of congressmen have proposed delisting Chinese stocks from U.S. exchanges. This became law via the Holding Foreign Companies Accountable Act. While implementation of this law has been fraught with challenges, the core problem with this approach is that Western asset managers have direct access to Chinese exchanges. Beijing seems so confident that foreign capital will continue flowing to China that it is voluntarily pulling large companies out of U.S. exchanges in favor of Hong Kong, Shanghai, and Shenzhen.

One such company is PetroChina, a state-owned oil company that is also deeply involved in the development of military facilities on artificial islands across the disputed South China Sea. Beijing has been militarizing the maritime choke point with anti-ship and anti-aircraft weapons systems as part of what the head of U.S. forces in the Pacific called China’s “largest military buildup since World War II.”

PetroChina’s delisting will have no real effect on its access to U.S. capital. America’s largest institutional managers own about $150 million in PetroChina [ ] traded in New York, but ten times more – $1.5 billion – in Hong Kong.

China once begged Wall Street to legitimize and capitalize its companies on its vaunted exchanges. Today, Wall Street comes to China through the retirement accounts of ordinary Americans, including government workers.

Thrift Savings Plan

Debate over sending retirement money to China is crystalizing around the world’s largest defined contribution plan. The $891.8 billion Thrift Savings Plan recently executed a longstanding plan to let participants invest up to one-quarter of their account value through a “mutual funds window” that offers exposure to some 5,000 funds managed outside the main platform. Offering TSP investors more options is a positive development, but the plan’s oversight board failed to install basic guardrails.

TSP bureaucrats and its politically-appointed leadership, the FRTIB, may bear responsibility for the lapse in judgment. According to official minutes from a May 2022 Board Meeting of the Federal Retirement Thrift Investment Board, external affairs lead Kimberly Weaver advised trustees that monitoring the mutual funds for exposure to Chinese equities “would prove too costly” for the program. The reality is that average mom-and-pop financial advisors, never mind a three-quarters of a trillion-dollar retirement plan, can easily and inexpensively screen for mutual funds geographic exposure to Chinese stocks.

With the Senate expected to soon consider the defense bill this summer, Congress has another opportunity to act, if it can stand up to the big investment firms and small bureaucrats opposed to sensible limits on the flow of federal retirement dollars to the People’s Liberation Army.

The Senate must prevent TSP participants – particularly U.S. service members – from investing in “Chinese Communist Military Companies” named by the Department of Defense at a minimum. But in reality, the TSP must be insulated from future risk posed by possible sanctions and market volatility created by the CCP. All nefarious investments must be prohibited in order to preserve the integrity of the TSP for all participants.

Examples of Chinese Bad Actor Companies included in the TSP’s Mutual Fund Window

  • Wuhan Guide Infrared: Manufactures cameras and products used by the Chinese military and police bureaus in Xinjiang, as well as in other parts of China for surveillance and policing purposes.
  • Suzhou Keda Technology Co: Suzhou Keda Technology has raised concerns due to its work designing surveillance systems, video conferencing tools, and facial recognition software and hardware. Specifically, Keda produces body cameras for Chinese law enforcement with facial recognition technology. Suzhou Keda Technology Co., Ltd. is also a part of China’s defense industrial base and supply chain.
  • OFILM Tech: OFILM has been identified by the Australian Strategic Policy Institute (ASPI) as being involved in the use of Uyghur forced labor. The company allegedly participated in the transfer of 700 Uyghurs from Xinjiang to one of its factories in Nanchang, Jiangxi province. OFILM manufactures compact camera and touchscreen components for technology companies such as Apple.


Chinese Bad Actor Companies by Risk Category


  • AECC Aero-Engine Control Co. Ltd. FPADX, SSKEX, VEMAX, DFCEX
  • AECC Aviation Power Co. Ltd. FPADX, SSKEX, BDOKX, VEMAX, DFCEX
  • AVIC Electromechanical Systems Co., Ltd. FPADX, SSKEX, VEMAX, DFCEX
  • AVIC Industry Finance Holdings Co Ltd. DFCEX
  • AviChina Industry & Technology Co. Ltd. FPADX, SSKEX, BDOKX, VEMAX, DFCEX
  • Avicopter PLC (AVIC Helicopter) FPADX, SSKEX, VEMAX
  • CGN New Energy Holdings Co., Ltd. VEMAX, DFCEX
  • CGN Nuclear Technology Development Co., Ltd. VEMAX
  • China National Nuclear Power Corporation DFCEX
  • China United Network Communications Ltd. FPADX, SSKEX, BDOKX, VEMAX
  • Inspur Electronic Information Industry Co. Ltd. FPADX, SSKEX, VEMAX, DFCEX
  • Inspur International Ltd. DFCEX
  • Inspur Software Co. Ltd. VEMAX, DFCEX



  • CGN New Energy Holdings Co. Ltd. VEMAX
  • CGN Nuclear Technology Development Co. Ltd. VEMAX
  • Fiberhome Telecommunication Technologies Co. Ltd FPADX, SSKEX, VEMAX, DFCEX
  • Guangzhou Haige Communications Group FPADX
  • Hoshine Silicon Industry Co. Ltd. FPADX, SSKEX, VEMAX
  • iFlytek Co. Ltd. FPADX, SSKEX, BDOKX, VEMAX
  • Suzhou Keda Technology Co., Ltd. DFCEX
  • Zhejiang Dahua Technology SSKEX, VEMAX



  • iFlytek Co. Ltd. FPADX, SSKEX, BDOKX, VEMAX
  • Wuhan Guide Infrared Co Ltd. FPADX, SSKEX, VEMAX, DFCEX
  • Zhejiang Dahua Technology VEMAX
  • Avary Holding Shenzhen Co. Ltd FPADX
  • Hon Hai Precision Industry Co. Ltd. (Foxconn) FPADX, DFCEX
  • Huafu Fashion Company VEMAX, DFCEX
  • LONGi Green Energy Technology Co., Ltd. DFCEX
  • WuXi Biologics Cayman Inc. FPADX, DFCEX


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