JEFFERSON CITY, Mo. (AP) — State treasurer Vivek Malek urged Missouri’s main retirement system to withdraw its investments from Chinese companies, making Missouri one of the first states to do so. Malek is now promoting the Chinese divestment as he runs for reelection in an Aug. 6 Republican primary against opponents who are also criticizing financial ties to China.
The Missouri treasurer’s race highlights a new aspect of opposition to China, which has been identified as a top threat to the U.S. by many candidates running for election this year. Indiana and Florida have also limited their public pension funds from investing in certain Chinese companies. Similar legislation aimed at public investments in foreign adversaries was rejected in Arizona and proposed in Illinois and Oklahoma.
China is the world’s second-largest economy after the U.S.
From 2018 to 2022, U.S. public pension funds and university endowments invested approximately $146 billion in China, according to an analysis by Future Union, a non-profit organization led by venture capitalist Andrew King. The report indicated that over four-fifths of U.S. states have at least one public pension fund invested in China and Hong Kong.
“Frankly, there should be more shame — for continuing to have those investments at this point,” said King, who claims that China has utilized intellectual property from U.S. companies to create similar products at lower prices.
“You’re talking about a significant amount of money that is competing against the U.S. technology and innovation ecosystem,” King added.
However, some investment officials and economists have raised concerns that the various state divestment policies could reduce investment returns for retirees.
“Most of these policies are unwise and would make Americans poorer,” said Ben Powell, an economics professor and executive director of the Free Market Institute at Texas Tech University.
The National Association of State Retirement Administrators opposes state-mandated divestments, stating that such directives should only come from the federal government based on U.S. security or humanitarian interests.
The U.S. Treasury Department recently introduced a rule that prohibits American investors from financing artificial intelligence systems in China that could have military applications. In addition, President Joe Biden prevented a Chinese-backed cryptocurrency mining firm from owning land near a Wyoming nuclear missile base in order to protect national security.
States have blacklisted specific investments in the past. Many states, cities, and universities divested from South Africa due to apartheid before Congress took action. Some states have also divested from tobacco companies due to health concerns.
Recently, some states announced divestment from Russia due to the war in Ukraine, which has been challenging for some public pension fund administrators.
The efforts to cease investments in Chinese companies coincide with a growing number of states targeting Chinese ownership of U.S. land. Twenty-four states now have laws limiting foreign ownership of agricultural land, with some laws facing legal challenges.
Indiana was the first state to enact a law mandating the gradual divestment of the state’s public pension system from certain Chinese companies. By March 31, 2023, the system had about $1.2 billion invested in Chinese entities, with $486 million subject to divestment. A year later, the investment exposure in China had decreased to $314 million, with only $700,000 remaining subject to divestment, as reported by the Indiana Public Retirement System.
Missouri State Treasurer Malek attempted to persuade fellow trustees of the Missouri State Employees’ Retirement System to divest from Chinese companies. After failing in November, he succeeded in December with a plan requiring divestment over a 12-month period. The retirement system officials did not respond to inquiries regarding the status of the divestment.
In recent weeks, Malek has emphasized the Chinese divestment in campaign ads, expressing concerns about fentanyl from China reaching the U.S. and pledging not to allocate any funds to them as long as he remains treasurer.
Two of Malek’s primary challengers in the Republican primary, state Rep. Cody Smith and state Sen. Andrew Koenig, also support divestment from China.
Koenig believes that China is becoming increasingly unstable and risky for investments.
“In China, the line between public and private is much more blurred than in America,” Smith stated. “So we cannot be certain that investing in Chinese companies does not support an enemy of the United States.”
Earlier this year, Florida Gov. Ron DeSantis signed a law requiring a state board overseeing the retirement system to create a plan by Sept. 1 for divesting from Chinese-owned companies. The oversight board announced in March 2022 that it would cease new Chinese investments. As of May, around $277 million was still invested in Chinese-owned entities by the retirement system.
Florida law already restricts investment in companies linked to Cuba, Iran, Sudan, Venezuela, or those participating in an economic boycott of Israel.
In April, Arizona Gov. Katie Hobbs vetoed a bill mandating divestment from companies in countries identified by the federal government as foreign adversaries, including China, Cuba, Iran, North Korea, Russia, and Venezuela.
Hobbs reasoned that the bill “would harm Arizona’s economic growth and the State’s investment portfolio.”
