One of the largest U.S. investment management firms is investing funds into companies within China’s military-industrial complex, according to a Thursday report from Coalition for a Prosperous America (CPA).
Vanguard’s emerging markets fund is funneling investments into 60 subsidiaries of Chinese military companies, some of which the U.S. government has subjected to export controls, according to the report from CPA, a non-profit that represents American manufacturers and producers. Vanguard has also invested in eight Chinese companies that the U.S. government has sanctioned for engaging in “the state-sponsored oppression of ethnic and religious minorities in the Xinjiang Uyghur Autonomous Region (XUAR) of Western China,” CPA’s report states.
“These case studies are both surprising and troubling from an investor protection, national security and human rights perspective,” said Roger Robinson, chairman and co-founder of the Prague Security Studies Institute, according to Financial Times. Robinson served as Senior Director of the International Economic Affairs Directorate on former President Ronald Reagan’s National Security Council and was “involved with the economic and financial strategy which weakened the Soviet Union,” according to the Reagan Library.
CPA’s report states that Vanguard has funded Chinese military companies including subsidiaries of Aviation Industry Corporation of China (AVIC) and Aero Engine Corporation of China (AECC), both of which the U.S. Commerce Department has listed on its Military End User List.
“As of the Vanguard Group’s last reporting date, the asset manager had a total of $46 million of U.S. client money invested in three AECC subsidiaries and another $44 million invested across ten AVIC subsidiaries,” CPA’s report states.
Vanguard has also invested $47 million in Chinese companies supporting China’s navy, according to the non-profit’s report.
The asset manager has invested in the China State Shipbuilding Corporation, whose subsidiary runs the Jiangnan shipyard that builds Chinese aircraft carriers, as well as CSSC Science and Technology, which is building an attack submarine “capable of firing anti-ship missiles,” according to CPA’s report.
However, CPA’s report does not claim that Vanguard’s investments constitute any illegal activity.
A Vanguard spokesperson told the DCNF that it maintains “the highest levels of compliance with all applicable laws and regulations.”
“We continue to monitor developments and would welcome additional clarity from policymakers,” the spokesperson said. “As one of many asset managers offering investors a range of funds to invest internationally, our clients’ investments in China are primarily through U.S.-based passive index products that provide diversified exposure to many developed and emerging economies.”
Vanguard’s $72.7 billion FTSE Emerging Markets ETF “invests in stocks of companies located in emerging markets around the world, such as China, Brazil, Taiwan and South Africa” and has “high potential for growth, but also high risk,” according to Vanguard’s website.
Chinese companies Tencent Holdings Ltd., Alibaba Group Holdings Ltd., Meituan Dianping and China Construction Bank Corp. are among the top ten largest holdings within Vanguard’s FTSE Emerging Markets ETF, according to its website.
Philip Lenczycki on October 12, 2023
