Date: Wed, 13th May 2020
Author: Demetri Sevastopulo
Source: Financial Times
President Donald Trump has instructed the main federal government pension fund not to invest its portfolio in Chinese companies as it poses a serious national security risk to their nation.
The intervention came into play when the Federal Retirement Thrift Investment Board, an agency that manages almost $600bn in its “Thrift Savings Plan”, was preparing to move the international component of the fund into an index which comprise of Chinese companies.
Robert O’Brien, US national security adviser, and Larry Kudlow, the White House economic adviser, said using the MSCI All Country World ex-US Investable Market index would “expose the retirement funds to significant and unnecessary risk” as that would mean investing in Chinese companies that pose national security and humanitarian concerns by operating in violation of US sanctions.
The FRTIB in November disallowed a bipartisan group of senators from investing in the index, claiming that this would put about 5.5m federal employees who invest in the retirement fund at a disadvantage. However, Mr Trump blamed China for the Covid-19 pandemic.
Mr O’Brien and Mr Kudlow said the risks of having Chinese stocks in the portfolio included the “possibility that future sanctions will result from the culpable actions of the Chinese government with respect to the global spread of the Covid-19 pandemic”.
Mr Trump has been criticised for his intervention measures. He blames China and suggested Beijing would pay a price. The White House officials said the FRTIB should consider China’s actions regarding Covid-19, which came to attention after the board’s November refusal to reverse course.
Mr O’Brien and Mr Kudlow wrote, “The Chinese government concealed critical information from the United States and the rest of the world regarding Covid-19 and exacerbated the ensuing global pandemic.”
In response, TSP’s labour secretary Mr Eugene Scalia wrote to Michael Kennedy [FRTIB chairman], Mr Trump expects the board to “immediately halt all steps associated with investing” in the index. While Mr Scalia cannot impose a reversal, he noted that Mr Trump had nominated three people to replace three of the five board members, lately. He added, deferring the change would “enable a newly-constituted board” to determine what fund should be used instead of the MSCI index.
Anik Sen [global head of equities at PineBridge] expressed, the Trump administration’s campaign could have broader effects on capital markets, adding on, “Federal rulings do have spin-off effects. It is likely that there will be pressure on the whole government state sector.”
The White House reported that the Chinese companies in the MSCI index include businesses which makes surveillance equipment who supplying to the People’s Liberation Army, thereby helping China repress religious minorities and groups that violate US sanctions by dealing with Iran and North Korea.
Roger Robinson, ex-chairman of the Congressional US-China Economic and Security Review Commission who has been pushing for action, said, “The TSP decision is of historic importance because of its vast knock-on effects for the US and global capital markets vis-à-vis China,” and added the White House move was significant
Marco Rubio, the Florida Republican senator and China hawk, applauded Mr Trump for “taking action and putting a stop to this misguided and deeply flawed decision by five unelected bureaucrats”. Mr Rubio and Jeanne Shaheen, a New Hampshire Democratic senator, have sponsored legislation that would bar TSB from investing in Chinese companies.
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