President Trump’s new America First Investment Policy, released last week, delivers an overdue sea change in American economic policy. For far too long, Wall Street asset managers have funded China’s military over American ingenuity, all while making apparent misrepresentations and material omissions about the risks of investing in China.
Will Wall Street’s largest asset managers finally take a hint from President Trump? Recent history suggests that Trump’s leadership must be robustly backed by state leaders, law enforcement, and the American public to force Wall Street to finally stop underwriting the enemy.
Three years ago, Russia’s invasion of Ukraine triggered sanctions on Russia and enormous capital flight. Investors suffered massive losses. Public pensions, for example, recouped pennies on the dollar. California pensioners lost $550 million, Alaska lost $250 million and Indiana lost $220 million. Georgia’s pension system lost $158 million after selling at a 99.73% loss.
Money managers who saw the writing on the wall quickly moved their money out of China, sparing their funds years of miserable returns. The $800 billion federal THRIFT savings plan divested from China in 2023. So did a handful of states, most notably deep-pocketed Texas. Foreign direct investment into China plummeted.
Yet with the prospect of conflict looming in the Pacific, even as the Chinese military conducts rehearsals to invade neighboring Taiwan, money managers like BlackRock continue funneling funds into Communist China despite its ongoing genocide and ongoing use of slave labor. Hundreds of billions in American passive investments are effectively Xi Jinping’s financial hostages to leverage and execute at a whim.
Seventeen state attorneys general have had enough. The AGs, led by Montana’s Austin Knudsen, recently sent a letter to six of the world’s largest money managers – BlackRock, JP Morgan, State Street, Invesco, Goldman Sachs, and Morgan Stanley –warning them that by whitewashing the obvious risks of investing in China, they could face legal action.
The AGs point out seven apparent material misrepresentations and omissions by the money managers. For example, Blackrock fails to mention that the Chinese Communist Party imposes CCP cells and militia units upon “private” companies. What the State Department describes as “genocide,” Blackrock cynically describes as “religious and nationalist disputes.” Furthermore, most Chinese companies listed on U.S. exchanges are, in reality, Cayman Islands shell companies that are probably illegal under Chinese law. BlackRock represents stakes in Cayman Islands shell companies as investments in “China” and “appears to actively conceal” these issues.
The six money managers collectively manage tens of trillions of dollars. They have ignored repeated warnings by legal experts, hedge fund managers, activist groups, and federal leaders. When Maria Bartiromo and George Soros agree that your fiduciary malfeasance harms national security, it’s time to rethink your investment strategy.
Perhaps not coincidentally, Blackrock gained access to Chinese savers mere weeks after they began hocking Chinese stocks to American savers. In 2021, Blackrock “abruptly reversed course on prior advice and made the disastrous recommendation that worldwide investors increase their investments in China.” The AGs view this as evidence of potential mixed motives to curry favor with the CCP in exchange for market access, a potential violation of fiduciary duty to their clients. Since then, BlackRock’s China ETF is down 30% while the MSCI all-world index is up 25%.
In financing Beijing’s war machine, American asset managers help China build a world-class military and give Beijing trillions in leverage over the American economy, thereby empowering and emboldening the CCP in its quest to dominate East Asia
Many China-based companies that receive American investment dollars are openly developing military technologies for the People’s Liberation Army (PLA). In 2023 alone, American financial institutions invested billions in 63 companies that had been blacklisted by the Department of Defense for their close ties to the PLA.
More recently, corporate giant Tencent was blacklisted in January for developing advanced artificial intelligence systems for the PLA. The stock lost 12% in a week. As of this writing, BlackRock continues to invest billions of its client’s dollars into Tencent, keeping their clients firmly on the tracks as the federal sanctions train rolls through.
BlackRock and other money managers simply cannot be counted on to put their clients first when it comes to investing in China. State and local pensions must order immediate divestment from all Chinese companies. American citizens should steer their hard-earned money into indexes and ETFs that avoid China. Meanwhile, AGs must continue to pursue justice.
The financial folly of America’s largest asset managers will turn to tears when trade with the CCP finally unwinds. “In the end, everyone is losing their money,” says hedge fund manager Kyle Bass. “I mean, in the end, you’re going to lose everything.”
Michael Lucci is the Founder and CEO of State Armor Action, a 501(c)(4) non-profit advocating for policy solutions to the global threats posed by the CCP.
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