The Telegraph: ‘High finance's continuing love affair with China should concern us all’, Benedict Rogers
Pretty much every pension fund has serious shares in Chinese equities - including firms linked to the surveillance state
Did you know there's a good chance your pension is invested in Chinese technology firms with ties to the Xinjiang surveillance state?
No. I imagine you didn’t.
High finance is a black box. The funds which run our pensions invest in stocks and shares around the world without any accountability, and increasingly – when it comes to China at least – their priorities are starkly at odds with those of the British public.
The rise of ethical investing – ‘environmental, social and governance’ (ESG) investing in the jargon of the industry – is designed to give us all a reassuring sense of security that our pension money is being invested in good sustainable equities which will generate a profit for our savings while doing a little bit of good for the world.
But the growing drive to invest in China exposes the rank hypocrisy of many of the key industry players. While posing as the pioneer of ethical investment, the CEO of Black Rock, the world’s largest asset manager, Larry Fink also is at the vanguard of those pushing for greater access to China’s markets: “I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term, both for asset managers and investors,” Mr. Fink said in a March letter to shareholders, “despite the uncertainty and decoupling of global systems we’re seeing today”.
BlackRock has been at the centre of the lobbying for greater access to China’s markets for investors. The firm pushed for a greater allocation of the weighting of Chinese stocks in global indices controlled by MSCI, FTSE Russell and other providers. In August 2021, the BlackRock research unit went further and argued that China was ‘under-represented’ in the portfolios of global investors and global benchmarks, that it should no longer be considered an emerging market, and recommended that investors boost their exposure to the country as much as three times.
BlackRock is not alone. From HSBC to Vanguard, JP Morgan to Schroders, major financial institutions have been racing after greater access to Chinese markets.
A new report by Hong Kong Watch lays out the full implications of these trends. The growing presence of Chinese equities in funds run by firms like BlackRock mean that pretty much every pension fund has serious shares in Chinese equities. For example, the UK Universities Superannuation Scheme (USS) is the largest private pension scheme in the country in terms of assets, covering all university staff. Of all the global holdings (not only those in Emerging Markets) in the British Universities Superannuation Scheme, one of the largest pension funds in Britain, Tencent is the second largest stock and Alibaba is the fifth largest stock. Given that £25 billion is invested in publicly listed equities, this means that the fund is investing hundreds of millions of pounds into the two firms. The fund also has more than £100 million invested in China Construction Bank.
There are a number of reasons to be concerned by this. First, little attention has been paid to the human rights record of Chinese technology firms. Investments in Tencent and Alibaba are problematic because Chinese technology companies of their size cannot divorce themselves from the Chinese state which is increasingly using a mixture of surveillance and technology to oppress and target minorities within its borders.
Alibaba has produced facial recognition software that has been used by the Chinese government to target Uyghurs and has helped construct the surveillance state and prison camps in which over a million Uyghurs are currently detained. It has also developed a privately run social credit application, Sesame Credit, which may be absorbed into the Chinese state’s dystopian social credit system. WeChat, owned by Tencent, has been accused by Human Rights Watch of censoring and putting its users under surveillance on behalf of the Chinese state. Other Chinese technology firms raise similar alarm bells.
But it is not only human rights that should concern us. Institutional investment in China has national security implications. Chinese state-owned banks are the largest bankroller of Chinese state-owned enterprises, who in turn have spent the last decade buying up a substantial amount of strategic infrastructure in the West, as well as being the largest lenders to the Belt and Road Initiative which has been accused of exploiting developing nations and being used as a tool for ‘debt diplomacy’. These firms, in turn, fund Chinese-state owned enterprises like the China National Oil Corporation, China General Nuclear Power Group or Beijing Construction Engineering Group who have been blacklisted by the United States. Greater scrutiny is needed.
Finally, questions should be asked of the safety of international institutional investment in China at a time when Xi Jinping is conducting a regulatory crackdown on the party. Investors have been burnt this summer as Xi has put the squeeze on a range of key firms. The rule of law is non-existent in China. One day, firms have the support of the Communist Party, the next they can find they are charged with corruption – this is the lesson of Desmond Shum’s new bombshell book about the inner workings of the Communist Party, Red Roulette. There are no guarantees that what appear shrewd investments now will not go sour in the next regulatory crackdown.
It’s time to ask our pension fund providers to stop increasing their China allocations. It’s not only the right thing to do, but also in our best interests.
Benedict Rogers is co-founder and Chief Executive of Hong Kong Watch and deputy chair of the Conservative Party Human Rights Commission. This article was published in The Telegraph on 23 September 2021.