Vanguard Funds Invest in Chinese Military Companies

(The Epoch Times)—The Vanguard Group, one of the world’s largest asset managers, invests in Chinese military groups and companies linked to forced labor through index funds, a new report says. The report comes as the Treasury Department finalizes the rules pertaining to a White House executive order prohibiting certain outbound investments to China.

Vanguard’s $70 billion flagship emerging markets index fund includes 60 companies on the Chinese military company sanction list by the Office of Foreign Assets Control (OFAC) under the U.S. Department of Treasury, according to the report released by the Coalition for a Prosperous America (CPA) on Oct. 13. CPA is an advocacy organization representing exclusively manufacturers that have productions in the United States.

In addition, the flagship and other Vanguard funds also hold shares of eight Chinese companies sanctioned over human rights abuses in China’s Xinjiang region, where the persecution of Uyghurs has been identified by the U.S. State Department as “genocide.”

The report didn’t provide a tally of all Vanguard investments in Chinese military companies but listed a total of $100 million in three such groups.

While noting that Vanguard’s fund holdings are legal, CPA urged Congress to take urgent action on the “long-festering, structural problem” that “a weak public policy response by the U.S. government has allowed greed within the asset management industry to supersede urgent American investor protection, national security, and human rights concerns.”

“Congress must turn off the tap of American capital flowing to China and stop private and public market investments into blacklisted CCP-connected companies,” Rep. Mike Gallagher (R-Wis.), chair of the House Select Committee on the Chinese Communist Party (CCP), told The Epoch Times in an emailed statement.

“Americans do not want firms like Vanguard and BlackRock to invest their retirement savings in companies building the Chinese Communist Party’s military and implementing its ongoing genocide against the Uyghur people. If we accept the status quo, we are willfully fueling our own destruction,” he added.

Congressional scrutiny over Wall Street’s role in financing Chinese military companies has been on the rise.

Three months ago, Mr. Gallagher’s committee launched an investigation on BlackRock, another leading asset manager, and global index provider MSCI over their role in channeling money to Chinese companies involved in building weapons for the Chinese military. The committee estimated $429 million of such investment against American interests by BlackRock.

In a letter dated July 31 to BlackRock and MSCI, Mr. Gallagher and committee ranking member Rep. Raja Krishnamoorthi (D-Ill.) wrote that, through the companies’ funds, Americans were “unwittingly funding” Chinese companies that fuel the CCP’s military and the two companies were “exacerbating an already significant national security threat and undermining American values.”

Two months later, BlackRock closed its China-focused offshore fund. All shareholders would have to redeem any outstanding shares by Nov. 7 before the fund’s liquidation. BlackRock previously told The Epoch Times that its products “comply with all applicable U.S. government laws” and it’s one of 16 asset managers offering U.S. index funds with investment in Chinese companies. The company didn’t directly comment on the closure of the China fund.

In an emailed response, a Vanguard spokesperson told The Epoch Times, “Vanguard maintains the highest levels of compliance with all applicable laws and regulations, including sanctions law. We welcome additional clarity from policymakers who are in a position to determine sanctions through the formal OFAC process.”

“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,” the spokesperson added.

In August, President Joe Biden issued an executive order (EO), prohibiting U.S. outbound investments to China in industries such as semiconductors and quantum computing. The Treasury Department has published preliminary rules, which listed index funds as excepted transactions under the EO. The public commentary period closed on Sept. 28.