US Pension Money Flows Into Blacklisted Chinese Companies

WASHINGTON—U.S. investment funds turn a blind eye to human rights records of Chinese technology companies such as Hikvision and Dahua Technology. They are among the entities blacklisted by the U.S. government for their involvement in human rights violations in China.

The Trump administration added 28 Chinese organizations to its “Entity List” on Oct. 7, effectively blocking them from buying U.S. technology. However, this doesnt prevent U.S. investors from buying these companies shares.

The list includes eight leading artificial intelligence (AI) and video surveillance companies that “have been implicated in human rights violations and abuses in Chinas campaign targeting Uighurs and other predominantly Muslim ethnic minorities,” according to the U.S. Department of Commerce.

Many Americans own shares in these companies through their retirement funds or various investment funds. Hence, they unwittingly finance Chinas human rights abuses, according to China experts.

“For far too long weve let the Chinese Communist Party have access to the Western capital markets without requiring their companies to actually abide by the rules that all the other companies abide by,” said Robert Spalding, China expert and author of the book “Stealth War: How China Took Over While Americas Elite Slept.”

China treats corporate accounting records of Chinese companies as state secrets, barring overseas regulators from accessing them. Hence the majority of U.S. investors are unaware of the identities of these companies and whether they comply with U.S. laws.

“As the American people become aware that their retirement funds are going into companies that not only face material risk from a financial perspective but also support atrocities like concentration camps [and] forced organ harvesting of prisoners of conscience then theyre going to call on their political leaders to make a change,” Spalding said.

The Chinese Communist Party has reportedly detained more than a million Uyghur Muslims in reeducation camps in Chinas northwestern region of Xinjiang. Besides Uyghurs, other religious groups and minorities in China—including Tibetan Buddhists, Christians, and Falun Gong practitioners—continue to suffer from systematic arrest, unlawful imprisonment, torture, and forced organ harvesting.

Among the companies blacklisted by the U.S. government are Hikvision and Dahua Technology, two of the worlds largest manufacturers of video surveillance products. Theyre involved in the implementation of facial recognition technology used to monitor the populace throughout China. In particular, the two companies have won a total of more than $1 billion worth of state-backed surveillance projects in Xinjiang between 2016 and 2018, according to IPVM, a U.S. surveillance video research company.

Sanctions will bar U.S. companies such as Intel, NVIDIA, Western Digital, and Seagate from selling products and solutions to Dahua and Hikvision.

Hikvision, with a market value of about $42 billion, is the worlds largest video surveillance company. The companys stock has risen more than fivefold since it started trading on the Shenzhen Stock Exchange in 2010. The shares, however, dropped more than 10 percent after the company came under scrutiny over its role in the mass surveillance of millions of Chinese citizens.

The U.S. Securities and Exchange Commission (SEC) “hasnt been aggressive in policing this,” Spalding said, adding that the regulator has a responsibility to the American people when their money is invested in a company with a material risk or a company that has been placed on an entity list.

Collateral Damage

More Chinese companies may be added to the U.S. governments blacklist.

Daniel Rosen, founder of the Rhodium Group, told Bloomberg on Oct. 8 that hundreds more Chinese companies have similar business profiles, and hence “this could spill over to them.”

“Theres a fairly hefty chunk of high tech activity here that has been impacted by this move, and I think its going to take a little while for people to sort it out. But its going to create some collateral damage, I think,” he said.

Other companies blacklisted include Chinas leading AI firms such as SenseTime Group and Megvii Technology. Both companies specialize in facial recognition and are the most well-funded startups in that space.

Founded in 2014, SenseTime has become the worlds most highly valued AI company, with a current valuation of $4.5 billion, according to Forbes. The Hong Kong-based company raised a total of $2.6 billion from financial backers including U.S. technology investors Tiger Global and Silver Lake Partners, as well as mutual fund firm Fidelity, and technology firm Qualcomm.

The Massachusetts Institute of Technology (MIT) spokesperson told Bloomberg on Oct. 8 that the school would review its partnership with SenseTime after the company was added to the blacklist. In February, MIT announced that it had formed an alliance with SenseTime as part of an initiative to advance AI research. SenseTime was founded by MIT alumnus Xiaoou Tang.

The other leading AI company, Megvii, was founded in Beijing in 2011 and launched Chinas first online facial recognition platform Face++ in 2012. Since then, the Alibaba-backed company raised more than a billion dollars from venture capital funds and reached a valuation of $4 billion in 2019.

In August, the company filed for an initial public offering (IPO) on the Hong Kong Stock Exchange and hired U.S. investment banks Goldman Sachs, Citigroup, and J.P. Morgan as joint sponsors of the planned IPO.

Goldman Sachs stated in an email that the bank was still “evaluating” its role in Megviis IPO “in light of recent developments.”

According to the financial data company Pitchbook, one of the backers of Megvii is the Chinese private equity firm BHR from which Hunter Biden, former Vice President Joe Bidens son, recently said he would resign.

Other technology companies blacklisted include AI firms Yitu Technologies and iFlytek, as well as digital forensics company Meiya Pico, and nanotechnology startup Yixin Science and Technology.

Some of these companies are public, and their stocks have become investment darlings for Western funds seeking high-growth assets.

The foreign capital inflows into Chinese stocks are expected to double this year as a result of the increase in Chinese stocks weighting in major indexes.

Early this year, global index provider MSCI announced that it would gradually quadruple the weighting of Chinese large-cap stocks in its global benchmarksRead More – Source