House Probe Finds Wall Street Firms Directed Billions to Blacklisted Chinese Companies

U.S. financial firms have been involved in investments totaling billions of dollars in index funds that included Chinese companies on the U.S. blacklist, a bipartisan House Committee investigation has revealed. The committee is now calling for legislation to restrict investment in these Chinese entities.

Last year, U.S. index providers and asset managers directed $6.5 billion to 63 Chinese companies that were flagged by the U.S. government for their involvement in advancing China’s military capabilities or supporting human rights abuses, according to the report released on Thursday.

While the activity was not deemed illegal, the panel is urging Congress to pass laws that would limit investment in blacklisted entities and mandate U.S. public companies to disclose risks related to China.

The investigation focused particularly on two key players in the financial industry – MSCI, the leading index provider globally, and BlackRock, the largest asset manager in the world. The report found that MSCI indexes alone directed $3.7 billion, while BlackRock invested at least $1.9 billion in these flagged Chinese entities.

“BlackRock and MSCI are not isolated in this practice – a comprehensive industry review has revealed that other major index providers and asset managers are channeling billions of dollars to these flagged entities,” the report stated.

This investigation comes amid increasingly strained relations between the U.S. and China due to a variety of contentious issues such as Taiwan, the origins of the COVID-19 pandemic, allegations of espionage, human rights violations, and trade tariffs.

A spokesperson from BlackRock responded to the report, stating, “The Committee and its report acknowledge BlackRock’s compliance with U.S. laws, highlighting that this issue impacts the entire asset management industry. Clear regulations are needed for U.S. investors, and Congress and the Administration must collaborate to establish these regulations.”

“Despite our extensive cooperation with the Committee over the past eight months, the report contains inaccuracies regarding index funds, including the claim that they are ‘funneling billions of dollars’ to these entities,” the spokesperson added.

MSCI, in a statement to Reuters, clarified that they do not endorse or manage investments in any country or company, emphasizing that an index is simply a mathematical representation of market performance and does not actually direct investments.

“We are pleased that the Committee has acknowledged the compliance of MSCI indexes with U.S. laws and regulations,” MSCI stated.

“If Congress or other government bodies decide to impose further restrictions on investment in China as suggested by the Committee, MSCI will evaluate any necessary changes to our indexes in accordance with our methodologies,” they added.