What the Biden Administration Should Do With ‘Blacklisted’ China Companies

If American companies cannot do business with a Chinese business due to its connection to the People’s Liberation Army, or IP theft, then why is it that Wall Street giants like BlackRock, State Street and Vanguard can continue pouring millions of dollars into those companies shares? If you’re a company on the Commerce Department’s Entity List – meaning there are bans on exporting technology and doing business with those companies, then American investment firms should also be prohibited from investing in them and even better- required to divest in those names.

Last week, the Biden administration placed eight new Chinese companies on Treasury’s investment blacklist – the OFAC NS-CMIC List. Most of the companies were involved in the prison and surveillance infrastructure in Xinjiang, home to tens of thousands of Muslim minorities living in captivity, or an open-air prison straight out of George Orwell’s dystopian novel “1984” – but with forced sterilization and forced abortions.

The 8 companies are part of Treasury’s Office of Foreign Assets Control’s “Chinese military-industrial complex companies” list, meaning U.S. investors are barred from taking financial stakes in the 60 Chinese groups already on the blacklist that now totals 68 companies.

As for now, companies are indeed invested but with varying timelines to buy and sell for the purposes only of divestment based on the timing of when a Chinese military company was added to the list.

Vanguard, Dimension, and Invesco are all investors in newly banned firm Xiamen Meiya Pico, a digital forensics company.  At one time, Vanguard owned shares in cloud-based surveillance tech firm NetPosa Technologies, now on the OFAC China military list, but sold their positions entirely as of November 30.

A BlackRock iShares emerging markets exchange-traded fund, as well as XTrackers CSI-300, known in the market as the China A-shares ETF, are still owners of newly banned Dawning Information, a large IT conglomerate. Its Chairman of the Board,  Guo Jie Li, got his Ph.D. from Purdue University.

SenseTime, a facial recognition software company, was going to do an IPO this month in Hong Kong, but Washington put the brakes on that plan for now with its addition to the OFAC List this month as the big money Wall Street firms like BlackRock cannot invest.

The newly listed eight companies are already on the Commerce Department’s “Entity List”, which restricts U.S. companies from exporting technology or products from America to the Chinese groups without obtaining government approval. Companies on the Entity List should face the same investment restrictions as those on the OFAC list.

There are some 68 Chinese companies on the OFAC list. It is unclear if Wall Street firms have divested from all of those names at this time. But the Biden administration has said this list will be “living” and more additions should be expected – and it is CPA policy to continue to advocate for them.

The Commerce Department’s Entity List is even larger, with nearly 500 names, but as of now, only 13 of these companies are on the list for prohibitions on capital market investment. Last week, the Bureau of Industry and Security (BIS) at Commerce announced 34 additions to this list. Of these additions, only four are also on the investment ban list: Changsha Jingjia Microelectronics Co., Ltd; Inner Mongolia First Machinery Group Co., Ltd; Fujian Torch Electron Technology Co., Ltd and Arosun Corp.

If American firms cannot sell computer hardware or software to these companies due to concerns that the equipment is used for nefarious ends, or is building up a business that got to its present level based on IP theft, then BlackRock et. al. should be banned from throwing money their way, as well.



Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.