JEFFERSON CITY, Missouri — State Treasurer Vivek Malek has pushed Missouri’s major retirement system to divest from Chinese companies, making the state one of the first in the nation to do so. Now Malek is touting China divestment as he seeks reelection in the Aug. 6 Republican primary against an opponent who denounces the system’s financial ties to China.
The Missouri Treasurer’s race highlights a new dimension of opposition to China, which many candidates running for office this year see as the biggest threat to the U.S. Indiana and Florida also restrict public pension funds from investing in certain Chinese companies. Similar bills targeting public investments in foreign adversaries have been rejected in Arizona and have been proposed in Illinois and Oklahoma.
China is the world’s second largest economy after the United States.
Between 2018 and 2022, U.S. public pension funds and university endowments have invested about $146 billion in China, according to an analysis by Future Union, a nonprofit pro-democracy group led by venture capitalist Andrew King. More than four-fifths of U.S. states have at least one public pension fund invested in China and Hong Kong, the report found.
“Frankly, it’s shameful, even more shameful, that we’re continuing to make these investments at this point,” King said, alleging that China is using the intellectual property of U.S. companies to manufacture similar products at below market price.
“Frankly, this is a significant amount of money competing with the U.S. technology and innovation ecosystem,” King said.
But some investment professionals and economists have expressed concern that inconsistent government divestment policies could weaken investment returns for retirees.
“Most of these policies are unwise and will make Americans poorer,” said Ben Powell, an economics professor and director of the Free Market Institute at Texas Tech University.
The National Association of State Retirement Plan Administrators opposes state-mandated divestment, arguing such orders should only be issued by the federal government to specific companies based on U.S. national security or humanitarian interests.
The Treasury Department recently proposed rules to bar American investors from funding Chinese artificial intelligence systems that could be used for military applications such as identifying targets for weapons, and in May, President Joe Biden blocked a China-backed cryptocurrency mining company from owning land near a nuclear missile site in Wyoming, calling it a “national security risk.”
But this isn’t the first time a state has blacklisted a particular investment: Before Congress finally acted, numerous states, cities, and universities divested from South Africa over apartheid, and some states divested from tobacco companies over health concerns.
Recently, several countries have announced divestments from Russia due to the war with Ukraine, but this has been difficult for some public pension fund managers to implement.
The move to block Chinese investment comes as a growing number of states target Chinese ownership of land in the U.S. Twenty-four states currently have laws restricting foreign ownership of farmland, according to the National Agricultural Law Center at the University of Arkansas. Some laws have broader application; for example, a Florida law that bans Chinese nationals from buying land within 10 miles (16 kilometers) of military installations or critical infrastructure is currently under litigation.
State pension divestment policies are “part of a broader move toward greater confrontation between China and the United States,” said Clark Packard, a trade policy fellow at the libertarian Cato Institute, but “it makes it harder for the federal government to manage the overall relationship when it has to deal with ad hoc policies at the state level.”
Last year, Indiana became the first state to enact legislation requiring its public pension system to gradually divest from certain Chinese companies. As of March 31, 2023, the system had invested about $1.2 billion in Chinese companies, of which $486 million was subject to the divestment requirement. A year later, its investment exposure to China had fallen to $314 million, with just $700,000 subject to the divestment requirement, the Indiana Public Pension System said.
Missouri Treasurer Marek tried to pressure trustees of the Missouri State Employees Retirement System to divest from Chinese companies in November. After failing, he tried again in December and won approval of a plan calling for a 12-month divestment. Retirement system officials did not respond to repeated questions from The Associated Press about the status of the divestment.
In recent weeks, Malek has campaigned on divestment from China in campaign ads, claiming that Chinese-made fentanyl is “drugging our kids” and vowing that “as long as I’m secretary of the Treasury, they’re not going to take any money from us. Not a penny.”
Both of Malek’s main opponents in the Republican primary, state Rep. Cody Smith and state Sen. Andrew Koenig, also support divestment from China.
Koenig said China was becoming more unstable, making it a “riskier place to invest money.”
“The line between public and private is much blurrier in China than it is in the U.S.,” Smith said, “so I think it’s hard to be entirely sure that if you invest in a Chinese company you’re not helping an enemy of the United States.”
A law signed by Florida Gov. Ron DeSantis earlier this year requires the state’s board that oversees retirement systems to develop a plan to divest from Chinese-owned companies by Sept. 1. The board had announced in March 2022 that it would halt new investments in China. As of May, about $277 million was invested in Chinese-owned businesses, including banks, energy companies and alcoholic beverage companies, according to an analysis by Florida legislative staff.
Florida law already prohibits investment in companies with ties to Cuba, Iran, Sudan or Venezuela, or that are engaged in an economic boycott of Israel.
In April, Arizona Governor Katie Hobbs vetoed a bill that would have required the state to divest from companies in countries the federal government considers foreign adversaries, a list that includes China, Cuba, Iran, North Korea, Russia and Venezuela.
In a letter to lawmakers, Hobbs said the measure would “negatively impact the economic growth Arizona is experiencing and the state’s investment portfolio.”
