House Committee Probing BlackRock, MSCI for Listing Chinese ‘Red-Flagged’ Firms
The House Select Committee on China is investigating U.S. investment firms BlackRock and index provider MSCI for their “decisions” that led to Americans investing savings into “dozens of blacklisted Chinese companies,” including entities that contribute to China’s human rights abuses, the committee said this week. In letters to the two firms, committee leaders said their investment-related decisions have resulted in Americans “unwittingly funding” Chinese entities building weapons for the country's military and contributing to the government's goal for “technological supremacy.”
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Both firms provide investment funds or indexes that include BGI Genomics Co., whose BGI affiliates are listed on the Commerce Department’s Entity List, the committee said. Other companies listed on the funds or indexes include subsidiaries of Aviation Industry Corporation of China, which is on the Treasury Department’s Non-Specially Designated Nationals Chinese Military-Industrial Complex Companies (Non-SDN CMIC) List; Hoshine, which is on the Uyghur Forced Labor Prevention Act Entity List; and CGN Power, which is on Treasury’s Non-SDN CMIC List and the Defense Department’s list of Chinese military companies.
“By facilitating massive flows of American capital to these and other [People's Republic of China] PRC entities linked to the [military] or to human rights abuses,” BlackRock and MSCI are “exacerbating an already significant national security threat and undermining American values,” said the letter, sent by Chair Mike Gallagher, R-Wis., and ranking member Raja Krishnamoorthi, D-Ill. Although the companies' investment decisions don’t necessarily violate any U.S. trade or investment restrictions, China’s “strategy of military-civil fusion creates a very high risk that companies that produce dual-use technologies or are otherwise deeply connected to the [Chinese] state may also be fueling the PRC’s military development,” the lawmakers said.
The letter asks both companies to provide the committee with a better understanding of the inclusion of “red-flagged PRC companies” in their funds and indexes. Lawmakers asked BlackRock and BCI for a list of all companies in their funds and indexes; a “detailed description of the factors” they consider when deciding which firms to include; whether they consulted the Entity List or other red-flag lists; and any documents relating to potential conflicts of interest involving the inclusion of the companies on the funds or indexes.
The letter also asked both companies whether they perform due diligence on companies before adding them to their funds or indexes. “If so, how and through what means do you do so?” the letter asks. “If not, what is your process for determining whether to include those companies in your indexes?” Other questions seek information about their efforts to be transparent to investors about which companies are included on their funds and indexes and request “detailed” summaries of their funds and indexes along with a “breakdown of U.S. investor exposure.”
MSCI said its indexes “measure the performance of equity markets available to international investors, and comply with all applicable U.S. laws.” The company “does not manage or recommend or facilitate investments in any country,” an MSCI spokesperson said in an Aug. 2 email. “MSCI is currently reviewing the request for information from the House Select Committee.”
A spokesperson for BlackRock didn’t respond to a request for comment.
The letters come as the Biden administration crafts a new program to screen and potentially prohibit outbound investments in certain Chinese companies (see 2307170029). Observers have also called on the U.S. to expand Treasury’s Non-SDN CMIC List -- which currently blocks certain restrictions involving publicly traded securities -- to also block certain investments in privately held Chinese companies (see 2302030023).