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How To Defund The Chinese Communist Party

JP Morgan
Image CreditFlickr/Jill Carlson

In late July, China’s People’s Liberation Army tested a nuclear-capable hypersonic missile. According to reports from the Financial Times, U.S. officials were surprised by the maturity of the Chinese technology. As one source put it: “We have no idea how they did this.”

Yet we do have an idea how they did this, because we know that American technology was used at a Chinese hypersonic test facility that models the heat and drag on hypersonic missiles. The sobering implication: U.S. technology directly contributed to China’s new military capability to strike the American homeland with nuclear and conventional weapons.

While this example is particularly egregious, there is nothing new about American technology and capital directly supporting the Chinese Communist Party (CCP) and its malign behavior. Through its military-civil fusion strategy, the CCP seeks to eliminate all barriers between its civilian and commercial sectors and its military and defense apparatus. This means there is no purely civilian industry in China — any commercial research or investments can be co-opted at any point by the Party to serve its objectives.

In recent years, Washington has taken bipartisan steps to defend against technology transfer to China, such as giving the Committee on Foreign Investment in the United States enhanced authority and restricting the ability of U.S. companies to export certain technologies to Chinese companies such as Huawei. Yet there is still very little oversight of outbound U.S. investment in China. As a result, U.S. policy is filled with self-defeating contradictions such as billions of dollars in federal incentives for domestic semiconductor production while American capital continues to fund China’s growing semiconductor industry.

Despite the growing bipartisan consensus on the need for selective technological and financial decoupling from the CCP — and despite dealing with a pandemic from Wuhan that exposed our dangerous dependency on China — Wall Street cannot seem to get enough of the Chinese market.

In 2021, JP Morgan Chase became the first international firm to take full control of a securities business in China, after years of negotiating with Beijing. The CCP’s leverage over the firm recently led CEO Jamie Dimon to apologize after joking that the firm would outlast the Communist Party. BlackRock, the largest asset manager in the world, has recommended tripling investments in China and recently became the first foreign-owned company allowed to set up a wholly owned mutual fund business in China.

Bridgewater, the world’s largest hedge fund, launched a fund in China in 2018 and raised $140 million for a second fund in 2020. Apple CEO Tim Cook revealed more than he intended about corporate America’s mentality when he recently began parroting IBM’s 1930’s justification for doing business with Nazi Germany: “world peace through world trade.”

Universities Invested in Chinese Companies

Such financial institutions manage trillions worth of assets on behalf of American universities, pensions, and others that have been at the forefront of so-called “ESG” (Environmental, Social, and Governance) investing. The ESG movement encourages investors to consider factors such as climate and social impact alongside the financial bottom-line of potential investments.

Take the University of California’s nearly $18 billion endowment, roughly half of which is invested in funds that exclude tobacco and fossil fuel companies. Yet those same funds, which attempt to signal the university’s virtuous priorities, invest in Chinese companies like Hikvision, which the U.S. government has sanctioned as a Chinese military-industrial complex company and restricted due to its role in the ongoing genocide in Xinjiang.

Or consider the University of Virginia (U.Va.), where President Jim Ryan wrote in a preface to the school’s sustainability plan: “The University of Virginia is committed to making the world a better place … As a community, we want to live our values consistently. Key among those values is being a good neighbor, locally in our community, and also on a global scale. We should always consider our collective impact on our community and the world.”

The U.Va. endowment is housed within a series of investments it calls the Long Term Pool, which totals about $14.5 billion. Three-quarters of the Long Term Pool is benchmarked against the MSCI All Country World Index, which includes malign Chinese entities like Hikvision and telecom giants ZTE and China Mobile. The Uyghurs detained in Xinjiang concentration camps monitored by Hikvision surveillance technology probably wouldn’t consider U.Va. a “good neighbor.”

Likewise, the University of Michigan recently announced a strategy under which it will cease investing in funds focused on fossil fuels and discontinue investments in publicly traded companies that help drive greenhouse gas emissions. Yet as former Reagan official Roger Robinson has outlined, one-third of Michigan’s venture capital investments, which comprise roughly 15 percent of its $12 billion in assets, are Chinese. Given that Chinese firms contribute more to greenhouse gas emissions than the companies of any other nation on earth, it remains to be seen whether Michigan will hold Chinese polluters accountable or solely single-out western firms.

Some Universities Take Better Approach

Some schools are starting to do the right thing. After Catholic University’s student government passed a unanimous resolution calling for the university to shed any Xinjiang-related investments it had, Catholic commissioned an independent audit of its endowment to eliminate any exposure to mass internment, forced labor, mass surveillance, and other crimes against Uyghurs.

Likewise, in 2018, the University of Texas/Texas A&M Investment Company updated its compliance procedures to strengthen oversight and accountability relating to investments in companies on U.S. government blacklists. Just recently, Wisconsin state Sen. Roger Roth introduced legislation to prohibit the University of Wisconsin system from investing its trust funds in companies owned or controlled by the Chinese government. These examples demonstrate that a better path is possible, but university leadership needs to get on board.

Ending Preferences for Complicit Universities

Blatant hypocrisy is only part of the problem with American universities and investment firms that lecture Americans about ESG but continue to chase profits in China. The real problem runs deeper – to something that lawmakers can fix.

Almost every major American research university enjoys preferential tax status as a federally recognized non-profit and receives federal funding. Until recently, universities paid no tax at all on endowment income. Even now they enjoy preferential treatment compared with other types of investment income. The federal government effectively subsidizes these universities because of the national benefits they purportedly provide. By extension, American taxpayers are unwittingly subsidizing the CCP’s ongoing malign efforts around the world.

This needs to stop. This is why I am crafting legislation to force American university endowments to either divest from China or give up the benefits they receive from the American taxpayer. This provision would also apply to any pension funds that receive tax breaks from the federal government, so that the retirement security of tens of millions of Americans totaling more than $10 trillion is not tied to the success of America’s greatest enemy.

It is time to choose. Are American universities committed to their professed values, or are they willing to profit from the CCP’s ongoing efforts to commit genocide, destroy the environment, and build weapons designed to kill Americans in a future war? The choice should be clear.