(The Center Square) – More state legislatures and governors are expected to take actions this year related to threats posed by the Communist Party of China (CCP) and People’s Republic of China (PRC).
Ahead of state legislative sessions beginning, financial officers from 15 states sent a letter to their state pension fund fiduciaries urging them to divest from China.
Joining with the Federal Retirement Thrift Investment Board and other state officials, they argue that “investments in China are no longer prudent investments.”
Trustees of state funds have a duty to investigate and monitor investments and “divest from imprudent investments, in order to ensure that those funds grow and are protected for future beneficiaries,” the states’ top financial leaders wrote. “The time has come to divest from China. Investments in China increasingly present red flags,” citing several reasons.
Those signing the letter are the respective auditors, treasurers or comptrollers of Alabama, Alaska, Arizona, Arkansas, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Pennsylvania, South Carolina and Wyoming.
The CCP poses several dangers, they argue, including cracking down “on firms providing due diligence, and financial audits have been found to be unreliable;” interfering with Chinese stock and bond markets, including recently concealing “the historic outflow of foreign investments and to stop market participants from selling shares;” controlling China-based companies, including placing intelligence and military operatives in them; and keeping the legal status of Variable Interest Entities (VIEs) in a state of uncertainty.
“VIEs are offshore shell companies that appear to be illegal under Chinese law, yet are the most common type of Chinese investment available to U.S. investors,” the letter says. “As the SEC has warned, the CCP could declare VIEs illegal ‘at any time and without notice.’”
They also note, “There is a significant risk that China may invade Taiwan in the near future, as it has repeatedly stated its intent to annex Taiwan even if by force and is conducting military exercises in the area.” The incoming Trump administration is expected to impose further restrictions on investing in China regardless of a Taiwan invasion, including imposing severe tariffs.
They also note that foreign investment in China “is rapidly declining, producing net outflows from Chinese markets.” Similar fiduciaries are divesting from or avoiding China-based investments, they point out, including the Federal Thrift Savings Plan and state systems in Florida, Indiana, Kansas, Missouri, Nebraska, Oklahoma, Pennsylvania, Tennessee and West Virginia.
They point to lessons learned from the Russian invasion of Ukraine, stating that many fiduciaries, including state pension plans, failed to recognize similar warning in 2022. “As a result, states lost billions of dollars in value that was held in trust for retirees,” they said.
“Pension boards should learn from the past, or they will be doomed to repeat it,” they warned. “As state financial officers, we urge public pension boards to analyze these issues, to identify China-based investments, and to divest from those investments in line with their fiduciary duties.”
In 2021, Florida Gov. Ron DeSantis warned of threats posed by the CCP and the state began taking multiple actions to divest from China and implement safeguards. In 2023, Cuban-Floridians expressed alarm about Chinese spies operating out of Cuba, The Center Square reported. This was after a nonprofit organization exposed PRC “police stations” illegally operating in the U.S., prompting the Department of Justice to file criminal complaints and members of Congress demanding answers.
By the end of 2024, Texas Gov. Greg Abbott issued executive orders instructing state entities to divest from China and enhance security measures, The Center Square reported.
The top financial leaders urged their states to divest from China after national security threats posed by China increased under the Biden administration.
This includes the greatest number of Chinese illegal border crossers were reported illegally entering the country in U.S. history – more than 176,000 – under the Biden administration, The Center Square first reported.
It also includes Chinese spies continuing to be arrested, U.S. military bases being breached by Chinese illegal border crossers, and a Chinese national illegally in the country shipping weapons to North Korea, The Center Square reported.
Multiple federal warnings were issued last year including by the National Security Agency and Cybersecurity and Infrastructure Security Agency that PRC state-sponsored actors compromise and maintain a persistent access to U.S. critical infrastructure. Former FBI Director Christopher Wray also warned that “China is the defining threat of our generation. … China’s hacking program is larger than that of every other major nation, combined,” The Center Square reported.
