Under Missouri’s leadership, some states purge Chinese assets

JEFFERSON CITY, Mo. — As state treasurer, Vivek Malek pushed Missouri’s main pension system to divest its holdings in Chinese companies, making Missouri one of the first states in the country to do so. Now Malek is touting Chinese divestment as he seeks re-election in an Aug. 6 Republican primary against challengers who also decry financial ties to China.

The race for Missouri treasurer highlights a new aspect of the opposition to China, which has been seen as a major threat to the United States by many candidates running for office this year. Indiana and Florida have also restricted their public pension funds from investing in certain Chinese companies. Similar legislation aimed at restricting public investment in foreign adversaries was vetoed in Arizona and proposed in Illinois and Oklahoma.

China is the world’s second largest economy after the US

Between 2018 and 2022, U.S. public pension and university funds invested about $146 billion in China, according to an analysis by Future Union, a pro-democracy nonprofit led by venture capitalist Andrew King. The report said more than four-fifths of U.S. states have at least one public pension fund investing in China and Hong Kong.

“Frankly, there should be shame — more shame than there is now — to proceed with such investments at this point,” said King, who alleges that China has used intellectual property from American companies to make similar products at below-market prices.

“This is a significant amount of money that, frankly, competes with the American ecosystem for technology and innovation,” King said.

However, some investment officials and economists have raised concerns that the emerging patchwork of state divestment policies could weaken investment returns for retirees.

“Most of these policies are unwise and would make American citizens poorer,” said Ben Powell, an economics professor and director of the Free Market Institute at Texas Tech University.

The National Association of State Retirement Administrators opposes state-mandated divestments, arguing that such orders should be issued by the federal government only against specific companies based on U.S. security or humanitarian interests.

The U.S. Treasury Department recently proposed a rule that would ban American investors from financing artificial intelligence systems in China that could have military uses, such as targeting weapons. In May, President Joe Biden banned a Chinese-backed cryptocurrency mining company from owning land near a nuclear missile base in Wyoming, calling it a “national security risk.”

Yet this is not the first time that states have blacklisted certain investments. Numerous states, cities and universities pulled out of South Africa because of apartheid, before the U.S. Congress finally took action. Some states have also pulled out of tobacco companies because of health concerns.

Recently, some states announced a divestment from Russia because of the war against Ukraine. But that was difficult to implement for some public pension fund managers.

The quest to stop investment in Chinese companies comes as a growing number of states are also targeting Chinese ownership of U.S. land. Two dozen states now have laws restricting foreign ownership of farmland, according to the University of Arkansas’s National Agricultural Law Center. Some laws apply more broadly, such as one facing a legal challenge in Florida that bars Chinese citizens from buying property within 10 miles of military installations and critical infrastructure.

Divestment policies from state pensions are “part of a broader march toward more confrontation between China and the United States,” said Clark Packard, a fellow in trade policy studies at the libertarian Cato Institute. But “it makes it harder for the federal government to manage the overall relationship if we’re dealing with arbitrary state-level policies.”

Indiana last year became the first to enact a law requiring the state’s public pension system to gradually divest from certain Chinese companies. As of March 31, 2023, the system had about $1.2 billion invested in Chinese entities, of which $486 million was subject to the divestment requirement. A year later, its investment exposure to China had fallen to $314 million, with only $700,000 still subject to divestment, according to the Indiana Public Retirement System.

Missouri State Treasurer Malek tried last November to persuade fellow trustees of the Missouri State Employees’ Retirement System to divest from Chinese companies. After failing, he tried again in December and won approval for a plan that called for divestment over a 12-month period. Officials at the pension system did not respond to repeated questions from The Associated Press about the status of that divestment.

In recent weeks, Malek has emphasized Chinese divestment in campaign ads, claiming that fentanyl from China is “drugging our children” and vowing, “As long as I’m treasurer, they’re not getting any money from us. Not a dime.”

Two of Malek’s main challengers in the Republican primary, state Rep. Cody Smith and state Sen. Andrew Koenig, also support divestment from China.

Koenig said China is becoming less stable and “a riskier place to invest money.”

“In China, the line between public and private is much blurrier than it is in America,” Smith said. “So I don’t think we can fully know that if we invest in Chinese companies, we’re not also helping an enemy of the United States.”

A law signed earlier this year by Florida Gov. Ron DeSantis requires a state board that oversees the pension system to develop a plan by Sept. 1 to divest from Chinese-owned companies. The oversight board had announced in March 2022 that it would stop making new Chinese investments. As of May, it still had about $277 million invested in Chinese entities, including banks, energy companies and alcohol companies, according to an analysis by Florida’s legislative staff.

Florida law already prohibits investments in certain companies with ties to Cuba, Iran, Sudan and Venezuela, or involved in an economic boycott of Israel.

In April, Arizona Gov. Katie Hobbs vetoed a bill that would have required divestment from companies in countries designated by the federal government as foreign adversaries. That list includes China, Cuba, Iran, North Korea, Russia and Venezuela.

Hobbs wrote in a letter to lawmakers that the measure “would be detrimental to the economic growth Arizona is experiencing, as well as to the state’s investment portfolio.”