US Financial Firms Backed Blacklisted Chinese Entities, House Panel Says

An investigation by the House Select Committee on China found that U.S. financial institutions facilitated the investment of $6.5 billion last year in 63 Chinese companies that the U.S. government has “blacklisted or otherwise red-flagged” for advancing China’s military capabilities or supporting its human rights abuses, the committee said April 18.

The money went to companies that appeared on such “blacklists” as the Commerce Department’s Entity List, the Defense Department’s 1260H list of Chinese military companies, the DHS’ Uyghur Forced Labor Prevention Act (UFLPA) Entity List, and the Treasury Department’s Non-Specially Designated National Chinese Military Industrial Complex Companies (NS-CMIC) List, the committee wrote in a 38-page report.

The Chinese companies that received the U.S. investment “develop advanced fighter jets and nuclear weapons for the People’s Liberation Army (PLA) and create the technology used to perpetrate the ongoing genocide against the Uyghur people,” the committee said. “What may surprise many Americans is that the activity by U.S. financial institutions described [in the report] is not illegal. It is time for Congress to act.”

The committee urged lawmakers to pass legislation to restrict U.S. investment in companies tied to the PLA, critical technology sectors, or forced labor and genocide. It also called for requiring U.S. public companies to disclose “key risks” related to China.

The committee said most of last year’s $6.5 billion investment was facilitated by two firms: $3.7 billion from index provider MSCI and $1.9 billion from asset manager BlackRock. MSCI said in a statement that it’s “pleased that the committee acknowledges that MSCI indexes comply with U.S. laws and regulations.” If Congress approves new restrictions on investment in China, “MSCI will assess applicable changes to our indexes in accordance with our methodologies," the statement says.

A BlackRock spokesperson said in a statement that "the committee and its report confirm BlackRock complies with applicable U.S.laws, [that] this matter affects the entire asset management industry, and that Congress and the [Biden] administration must work together to create clear rules of the road for U.S. investors."

Congress has been debating outbound investment limits but has been divided over how to proceed, with some lawmakers preferring individual sanctions on specific entities and others favoring restrictions on whole technology sectors (see 2401180067).

The House Select Committee said in February that another of its investigations found that five U.S. venture capital firms have invested more than $3 billion in Chinese technology companies, many of which aid China’s military, surveillance apparatus and human rights violations (see 2402080072).