China’s recent saber-rattling over Taiwan is indicative of rising tensions between Washington and Beijing. China’s belligerent posture also raises the worrying prospect of future military conflict between the United States and China. In response, it seems obvious that the U.S. should do everything possible to limit China’s military ambitions. And yet, Wall Street is still actively funding entities tied to China’s military.
At issue are Exchange Traded Funds (ETFs) and other investment products being sold to U.S. investors by BlackRock, Vanguard, and other Wall Street financial firms. Many of these investment vehicles contain Chinese companies involved in the building and modernization of China’s military. For example, CSSC Holdings Ltd. (CSSC)—China’s largest builder of military ships—is listed in several major investment indices, including MSCI Emerging Markets, MSCI ACWI, FTSE Emerging, and FTSE All-World. These indices contain literally trillions of dollars of assets under global management.
ETF providers such as Blackrock’s iShares and Vanguard’s UCITS have been all too happy to offer investors a stake in funds that contain CSSC. As a result, CSSC has raked in plenty of capital from U.S. investors.
In 2003, Beijing initiated a series of central government policies to raise funds through capital market products for its national shipbuilding industry. CSSC was among the prime beneficiaries of this effort and, by 2015, had already raised $8.63 billion from debt markets along with another $3.02 billion from equity sales.
What did CSSC do with this massive influx of capital? Starting in 2014, the company initiated construction and testing of the components of a new “Type 003” warship—the “Fujian” aircraft carrier—at its Jiangnan Shipyard. The Fujian vastly expands China’s “blue water” naval capabilities and is intended to rival America’s largest and most advanced carrier, the USS Gerald R. Ford.
Through June of this year, China has launched three Fujian carriers. A fourth aircraft carrier is presently under construction.
What makes this particularly disturbing is that CSSC’s parent company—China State Shipbuilding Corporation Limited—has already been designated by the U.S. government as having ties to China’s military-industrial complex. And executive orders originated by President Donald Trump and amended by President Joe Biden make clear that no U.S. person should purchase or sell securities for companies deemed to be supporting China’s military-industrial base.
Unfortunately, the list of companies tied to China’s military is not exhaustive or complete. It fails to cover certain parent companies or subsidiaries of listed companies. As a result, U.S. investors are still actively funding Chinese entities such as CSSC Holdings, Ltd. through associated ETFs and Mutual Funds.
Americans should be deeply concerned by this—and Washington must respond accordingly.
Congress can certainly halt such funding, though, since it has the authority to address the transparency, disclosure, and due-diligence requirements of Wall Street and the financial sector. Step one should be making clear what’s in these investment products. But even more important, new legislation is needed to immediately close loopholes in U.S. sanctions policy that still allow money to flow to such entities. The Biden administration can also expand its executive order regarding the scope of foreign companies tied to China’s military.
Beijing has made clear the seriousness of its claims to Taiwan—and has already initiated unprecedented naval and aerial maneuvers. In order to avert a potential war with China, the U.S. must take Beijing’s threats seriously.
It’s past time to implement every possible tool to halt the funding of America’s leading military adversary. Congress should immediately require transparency and disclosure from index providers and fund managers—and prohibit sanctioned and bad-actor Chinese companies from investment products such as ETFs and Mutual Funds. This should be a no-brainer, and Wall Street’s self-serving profit motive must no longer interfere with America’s national security.
• Robby Stephany Saunders is the National Security Advisor at the Coalition for a Prosperous America.