Janice R. Andrews
In his capacity as state treasurer, Vivek Malek advocated for the withdrawal of Chinese company investments from Missouri’s primary retirement system, placing the state among the first in the country to do so. Now, as he campaigns for reelection in a Republican primary on August 6 against opponents who likewise criticize financial ties to China, Malek is highlighting the withdrawal from China.
A fresh angle on the hostility to China, which many candidates this year have portrayed as the biggest threat to the United States, is brought to light by the Missouri treasurer’s campaign. Additionally, Florida and Indiana have prohibited their public pension funds from making investments in specific Chinese firms. Arizona vetoed similar legislation, and similar bills were filed in Illinois and Oklahoma that targeted public investments in foreign rivals.
After the United States, China has the second-largest economy in the world. According to an estimate by Future Union, a nonprofit organization that promotes democracy and is managed by venture investor Andrew King, between 2018 and 2022, U.S. public pension and university endowments made around $146 billion in investments in China. According to the research, at least one public pension fund in each of the more than four-fifths of US states has investments in China and Hong Kong.
King, who claims that China has stolen intellectual property from American businesses to produce identical goods at lower rates than the market, stated, “Frankly, there should be shame — more shame than there is — for continuing to have those investments at this point in time.” King continued, “You’re talking about a significant sum of money that, to be honest, is competing against the U.S. technology and innovation ecosystem.”
Nonetheless, a few economists and investment authorities are worried that seniors’ investment returns may be weakened by the disorganized state divestment plans that are only starting to take shape. “The majority of these policies are foolish and would further impoverish Americans,” stated Ben Powell, a Texas Tech University economics professor and executive director of the Free Market Institute.
The National Association of State Retirement Administrators argues against state-mandated divestitures, arguing that federal government alone should have the authority to impose such actions against particular corporations on the grounds of U.S. security or humanitarian concerns.
A new law that would forbid American investors from supporting artificial intelligence systems in China that may be used for military purposes, such weapon targeting, has been suggested by the U.S. Treasury Department. Declaring it a “national security risk,” President Joe Biden barred a bitcoin mining company with Chinese backing from holding land close to a nuclear missile station in Wyoming in May.
However, nations have already outlawed specific investments. Before the US Congress finally intervened, a large number of states, towns, and academic institutions withdrew their affiliation from South Africa due to apartheid. A number of states have also cut their ties to tobacco businesses due to health concerns. Recently, a few governments declared their intention to divest from Russia due to the ongoing conflict with Ukraine. But for certain administrators of public pension funds, it has proven to be challenging.
The effort to stop funding Chinese businesses coincides with an increase in the number of governments pursuing Chinese property ownership claims. The National Agricultural Law Center at the University of Arkansas reports that as of right now, rules prohibiting foreign ownership of agricultural property are in place in twenty states. Certain rules, like one that is being challenged in court in Florida, have broader application. For example, they prohibit Chinese nationals from purchasing real estate within 10 miles (16 kilometers) of military facilities and vital infrastructure.
According to Clark Packard, a research fellow for trade policy studies at the libertarian Cato Institute, state pension divestment plans are “part of a broader march toward more confrontation between China and the United States.” But “having to deal with a scattershot policy at the state level makes it more challenging for the federal government to manage the overall relationship.”
The state of Indiana was the first to pass legislation last year mandating a phased withdrawal of investments from specific Chinese businesses by the public pension system. About $1.2 billion of the system’s assets were in Chinese companies as of March 31, 2023, of which $486 million were subject to the divestiture obligation. After a year, the Indiana Public Retirement System reported that its investment exposure in China had decreased to $314 million, with just $700,000 remaining vulnerable to divestiture.
In November of last year, Missouri State Employees’ Retirement System trustee Malek made an attempt to persuade colleagues trustees to remove their investments in Chinese firms. After failing, he retried in December and was successful in getting approval for a plan that called for divesting over a full year. When The Associated Press repeatedly inquired about the status of the divestiture, representatives of the retirement system remained silent.
In recent weeks, Malek has made a point of bringing up the Chinese divestment in his campaign advertisements. He claims that fentanyl coming from China “is drugging our kids” and makes a promise that “they won’t get money from us as long as I’m treasurer.” Not a single dime.
Divestment from China is a stance that is shared by state senator Andrew Koenig and state representative Cody Smith, two of Malek’s primary rivals in the Republican primary. China is growing less stable, according to Koenig, and is thus “a riskier place to have money invested.” According to Smith, “the distinction between public and private is much more hazy in China than it is in America.” “Therefore, I don’t think we can be completely certain that by investing in Chinese businesses, we aren’t also supporting an enemy of the United States.”
A state board in charge of the retirement system must create a strategy by September 1st to remove itself from investments in Chinese businesses, according to a bill that Florida Governor Ron DeSantis approved earlier this year. The supervisory board said in March 2022 that it would no longer be making any new investments in China. According to a Florida legislative staff report, as of May, it still had over $277 million invested in Chinese-owned businesses, such as banks, energy corporations, and alcohol industries. Investment in some businesses connected to Cuba, Iran, Sudan, and Venezuela, as well as those participating in an economic boycott against Israel, is already illegal in Florida.
A law requiring divesting from firms in nations deemed by the federal government to be foreign foes was vetoed by Arizona Governor Katie Hobbs in April. China, Cuba, Iran, North Korea, Russia, and Venezuela are on that list. The proposal “would be detrimental to the economic growth Arizona is experiencing as well as the State’s investment portfolio,” Hobbs wrote in a letter to lawmakers.
These state-level efforts are part of a larger trend that shows how the United States is becoming more aware of and restrictive of Chinese influence domestically as it struggles with its strategic and economic relationship with China. There will probably be additional discussions about how to handle this intricate and dynamic topic in the run-up to the elections.
