By Michael Lucci, Founder & CEO of State Armor
United States investors are the heavyweights of the world and have been extraordinarily open to sharing their capital and expertise to fuel development across the globe. Americans have invested heavily in the Chinese people and Chinese industry. They have poured trillions of dollars into the Chinese economy and government coffers.
However, America’s tremendous openness has been exploited by the Chinese Communist Party to fuel the CCP’s military build-up and atrocious human rights abuses, all while degrading financial transparency and legal certainty for American investors. Today, therefore, State Armor is publishing an open letter calling upon all state and local public fund managers to protect their pensioners, endowments, and other public funds by completely divesting from China as soon as possible, and to cease any new China-based investments.
As a result of the Chinese Communist Party’s tremendous military build-up, financed in part by American capital and expertise, fiduciaries now must weigh the extraordinary risk of China invading Taiwan, which China’s military drilled and simulated just one month ago for the third time in the last two years. Furthermore, fiduciaries may violate their duty of care and the prudent investor standard by investing in stocks or bonds of China-based companies.
Such are the findings of State Armor’s newest publication, The CCP Divestment Report: An in-depth analysis on fiduciary duty and the dangers of China-based investments, which analyzes a fiduciary’s duty as it relates to China-based investments.
State and local pensions and endowments undoubtedly hold hundreds of billions of dollars in China-based investments. According to an analysis by Future Union, large public pensions invested nearly $70 billion in new money since 2021, led by California and New York.
According to our analysis, China-based investments appear to violate components of the fiduciary duty of care that require monitoring and investigating investments to ensure they are prudent for several reasons:
- Warning signs are flashing red that China-based investments are likely to be subject to similar trading restrictions as Russia-based investments in 2022, leading to similar losses.
- The outgoing Biden Administration recently imposed new restrictions on investing in China.
- The incoming Trump administration has signaled intent to increase tariffs upon China and separate economically and financially.
- Foreign investment in China is declining.
- Prominent pension funds, including the Federal Thrift Savings Plan, have divested.
Furthermore, it is impossible to conduct a thorough investigation into China-based investments currently because:
- The CCP has cracked down upon due diligence and financial audits have been found unreliable.
- The CCP interferes with Chinese stock and bond markets.
- The CCP exerts control over China-based companies.
- The CCP keeps most China-based investments in a state of legal uncertainty, as these investments use a high-risk shell-company structure that has few safeguards and relies on the CCP choosing to look the other way on Chinese law.
Furthermore, prominent America national security leaders have long championed the necessity of divesting from the CCP. With his permission, we are publishing a powerful analysis by Roger Robinson that breaks down the financial, national security, and human rights components of American investments in China. Roger served our country as the Senior Director of International Economic Affairs on President Ronald Reagan’s National Security Council and as Chairman of the Congressional U.S.- China Economic and Security Review Commission.
Roger estimates that present American holdings include over $1 trillion of Chinese equities and another $1 trillion in debt holdings. Exact numbers are difficult to ascertain because China uses complicated legal structures, index funds, and tax havens to mask its financial activities. His deep knowledge of financial markets is essential to understand the full scope of America’s investments in China and how the CCP leverages these investments to harm our national security and human rights within China.
The work of Roger and others contributed tremendously to Maria Bartiromo’s definitive series on Fox Business, Underwriting the Enemy, the three parts of which can be viewed through the links below using password “Nation.”
UNDERWRITING THE ENEMY EP 1 – The Price of Greed
UNDERWRITING THE ENEMY EP 2 – Surveillance State
UNDERWRITING THE ENEMY EP 3 – Countdown to Invasion
Going forward, American capital and expertise must fuel the growth of America and her friends and allies. State Armor’s call for all state and local fund managers to divest from the CCP should be echoed by a broader national call that is equally strong and magnitudes more important. All American investors should sell all China-based investments and divest completely from the Chinese Communist Party. We look to our federal leaders to advance that process forthwith.
