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State Pension Funds Invest Millions in Blacklisted Chinese Companies

New York and California kick millions to China as they claim investments will advance ‘human rights’ and other ESG values

New York State Comptroller Thomas DiNapoli speaks at a Get Out The Vote rally on November 5, 2022 in New York City. (Photo by David Dee Delgado/Getty Images)
July 19, 2023

The New York State public employee retirement fund says it promotes "human rights" with its investments. But a Washington Free Beacon review found New York and other states invest millions of taxpayer dollars in Chinese companies that develop sensitive military technology and help the communist regime surveil and imprison Uyghur Muslims.

The California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the New York Common Retirement Fund are the three largest retirement funds for millions of public employees, including librarians, teachers, and firefighters. The funds have publicly committed to promoting environmental, social, and governance (ESG) values when investing, including the protection of human rights.

The funds, however, invest millions of taxpayer dollars in companies identified by the U.S. Department of Defense as "Communist Chinese military companies," according to a review of asset listings. The holdings belie commitments by these states to promote ESG values when investing and highlight a failure by the federal government to stop U.S. taxpayer money from funding the Chinese military-industrial complex.

New York’s retirement fund, for instance, invests in BGI Genomics, which in 2020 said it would build a gene bank and a "judicial collaboration" center in the Chinese province where Uyghur Muslims were being arrested and sent to internment camps. The projects were part of a larger effort by China to "document the genetic material of ethnic minorities," according to an Axios report. Chinese government treatment of Uyghurs has included political reeducation, slave labor, and forced sterilization. The Defense Department has identified BGI as a "Communist Chinese military company" for its role in the Uyghur genocide.

CalPERS, the largest state pension fund in the United States, and the New York retirement fund invest nearly a million dollars in 360 Security Technology, a self-described Chinese "internet security" company that was placed on an economic blacklist in 2020 for its role in "high-technology surveillance against Uyghurs." Both funds also hold stock in Zhejiang Dahua Technology, a partly state-owned company that manufactures video surveillance equipment and is also subject to the U.S. blacklist for its involvement in Uyghur surveillance.

A Free Beacon review of ESG risk scores for Chinese military companies found that they receive high ratings from the industry, which has been rocked by accusations of political bias. The risk scores, which measure a company’s exposure to unethical activity, calculated by Morningstar company Sustainalytics rated BGI Genomics, 360 Security Technology, and Zhejiang Dahua Technology more ethical than Tesla.

New York and California hold millions in these companies’ stock as they tout their commitments to ethical investing. A 2020 "ESG Strategy" document from the New York comptroller’s office pledges to consider "human rights," "supply chain labor standards," and "privacy and data security" when investing. The fund also pledges to tackle "climate change risks," "labor rights," "disability inclusion," and "factory safety in Bangladesh." The California funds make similar promises. A 2019 CalPERS "Government & Sustainability" document vows to make investments aimed at the "elimination of human rights violations in all countries" and the "development of basic democratic institutions and principles."

The state pension funds also invest millions in companies blacklisted for attempting to steal U.S. military technology. CalPERS and the New York retirement fund both invest in multiple subsidiaries owned by the Aviation Industry Corporation of China. AVIC, a state-owned aerospace and defense conglomerate, has been on the Defense Department’s list of "Communist Chinese military companies" since June 2021.

Last month, the U.S. blacklisted an AVIC subsidiary for "attempting to acquire US-origin items in support of China’s military modernization," according to a Commerce Department press release. The AVIC 612 Institute was among entities with "demonstrable ties to activities of concern, including hypersonic weapons development" and the "design and manufacture of air-to-air missiles," the statement said.

"Decades of unmitigated engagement between the United States and China have intertwined Americans' personal finances with PLA-affiliated companies," Michael Sobolik, a senior fellow in Indo-Pacific Studies at the American Foreign Policy Council, told the Free Beacon. "Multiple state-managed retirement accounts invest in companies directly and indirectly linked to China's military. In effect, Americans are underwriting the defense and technological buildup of the Chinese Communist Party and the People's Liberation Army. Policymakers have no excuse for allowing this reality to continue."

Both California funds also invest in the holdings firm for the China State Shipbuilding Corporation, which produces warships for the Chinese Navy and controls more than a fifth of the global commercial shipbuilding market. The country became the world shipbuilding leader when it combined its commercial and military shipyards.

This merger represents a broader strategy the government has adopted in recent years. China has recently adopted a strategy of "military-civil fusion" that integrates the country’s public and private sector resources. This move aims to accelerate production and innovation and give the government and military easier access to new technologies. From surveillance technologies to aircraft engines, the country’s private companies have become more deeply intertwined with the Chinese military. This development has made American companies more liable to indirectly support the military’s efforts by working with or investing in Chinese companies.

Beyond complicity in genocide and support of the Chinese military, U.S. tax dollars go to companies working to strengthen ties between China and allies like Iran.

All three funds invest nearly $30 million in China Railway Group, which has come under scrutiny from state pension funds before for ties to Iran. In 2016, the company signed a $2 billion contract with Iran to build a high-speed rail line that National Geographic reported would give the state "military access to hard-to-control parts of the country." The same year, CalSTRS announced its stock holding of the company was "under review" and reportedly dumped it in 2020. But a Free Beacon review found CalSTRS quietly returned China Railway Group to its portfolio sometime before July 2022.

The two countries announced a 25-year cooperation deal last year. China has pledged to invest $400 billion in Iran in exchange for continuous access to Iran’s oil supply. It’s the latest investment abroad by China in a bid to advance its global influence. The communist regime’s broader strategy, labeled the "Belt and Road Initiative," has pledged trillions in new infrastructure to countries in Africa, South America, and the Middle East.

New York’s state pension fund last year divested $238 million from 21 fossil-fuel companies that state comptroller Thomas DiNapoli’s office said "failed to show viable transition strategies." In March, the fund announced a $1.3 billion "sustainable investment program" to "capitalize on climate solution opportunities." In 2018, DiNapoli sent McDonald’s a letter "in his capacity as trustee of the $209.2 billion New York State Common Retirement Fund," according to Bloomberg, chiding the fast-food chain for its treatment of chickens.

Neither the comptroller nor any other spokesperson for the fund has made public statements or investment changes surrounding BGI Genomics, 360 Security Technology, or Zhejiang Dahua Technology, despite their blacklisted status. The New York comptroller's office and CalPERS declined to comment. CalSTRS told the Free Beacon the fund "manages a highly diversified portfolio" and "complies with the sanctions issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control."

California last year divested from two private prisons in the United States, citing its "environmental, social, and governance" policy that pledged to respect human rights.

This comes as U.S. officials soften their rhetoric toward China and retreat from the term "decoupling," as Treasury Secretary Janet Yellen did during her visit to China last week. Instead, Yellen said the United States should focus on less sweeping policy moves such as "diversifying critical supply chains or taking targeted national security actions."