Americans Shouldn’t Fund Communist China’s Armed Forces

Soldiers from China's People's Liberation Army carry a flag ahead of the Victory Day military parade marking the 75th anniversary of the Nazi defeat on Red Square in Moscow, Russia, Wednesday, June 24, 2020. The Victory Day parade normally is held on May 9, the nation's most important secular holiday, but this year it was postponed due to the coronavirus pandemic. (AP Photo/Pavel Golovkin, Pool)

American investors should not be financing Communist China’s military buildup. On Thursday, President Trump signed an executive order to prevent just that and protect American security. The order bans individual and institutional investors from owning shares in 31 Chinese firms that provide the Communist regime’s armed forces with ships, planes, and cutting-edge technology. This action is long overdue.

For years, Communist China has relied on American money to fund its military modernization. Investors looking for strong financial returns – everyone from mom-n-pop stock-pickers to pension funds – have plowed untold sums into the direct purchase of Chinese stocks or mutual funds that purchase those stocks. Yet many of these companies owned, controlled, or otherwise influenced by the Chinese military, as a Department of Defense report made clear earlier this year.

Most of these firms are listed on Chinese stock exchanges, but at least two have subsidiaries trading on U.S. markets. Either way, investors are able to buy their shares through a variety of means. The amounts involved are stratospheric: One U.S. index fund, the MSCI Emerging Markets Index, is tracked by at least $2 trillion. The index contains shares in many of the companies affected by the President’s executive order. Anyone who invests in the index or tracks it becomes a part-owner of those companies and helps fund their work with China’s military.

Consider some of the firms that will be banned by President Trump’s order.

One is the Aviation Industry of China, a government-owned enterprise whose mission statement is “repay and strengthen the country with aviation.” To that end, the company’s subsidiaries manufacture Communist China’s military aircraft, including helicopters, transports, stealth fighters (such as the Shenyang J-20), and the Xi’an H-20 stealth bomber, to name a few. The company’s subsidiaries also carry out maintenance on Chinese air and naval craft in the South China Sea.

Another is the China Shipbuilding Industry Corporation, which was recently folded into the China State Shipbuilding Corporation – another government-run firm. The company’s mission includes “boost[ing] the shipbuilding industry to serve the country,” which it accomplishes by constructing the Chinese navy. The company is building multiple aircraft carriers, as well as a vast number of frigates, destroyers, and nuclear attack and ballistic missile submarines. Thanks to this company, Communist China has a “blue water navy” capable of projecting power far beyond its own coasts and region.

Yet another company, Hikvision, provides surveillance equipment to China’s military. It has also supplied security cameras to the Communist Party’s oppression of the Muslim Uighurs in Xinjiang. Hikvision’s products now watch over the region’s mosques and detention centers – which are really modern-day concentration camps – where as many as three million Uighurs have been imprisoned. Although its activities in Xinjiang have no bearing on the President’s executive order, it is still heartening to know that American investors will no longer own stock in a company that’s helping perpetrate one of the modern world’s most heinous human rights violations.

The list goes on. It includes Huawei, whose telecommunication products are feared to be open to access and abuse by the Chinese military and intelligence services. It includes the China Communications Construction Company, which has helped build artificial islands in the South China Sea, which the Chinese military is now using to threaten neighbors and exert its regional dominance. One company, China SpaceSat, manufactures Chinese military satellites. Other firms include those dealing with electronics, chemicals, nuclear power, and more.

In every case, American investors own shares in these companies. The ownership is often, if not usually, unwitting. In the case of mutual funds, financial advisors often don’t know the full extent of these companies’ involvement with the Chinese military. Public pressure has already caused some equity funds to divest from these military-linked companies, but the door is still open to investment in numerous firms that endanger American interests. Every day, countless Americans invest in or benefit from these Chinese companies, which in turn benefit from American dollars.

President Trump is smart to shut this door. The ban will take effect on January 11th, only nine days before Joe Biden is sworn in. The President-Elect is planning to undo many Trump-era policies, but this executive order should not be one of them. The next Commander-in-Chief should preserve and even strengthen the financial restrictions on American money flowing into Communist China, with a special eye toward decoupling from companies that enable China’s human rights abuses. No U.S. citizen or institution should be able to buy Chinese securities that threaten American security or undermine American interests.

Marion Smith is executive director of the Victims of Communism Memorial Foundation in Washington, D.C.

Originally published in RealClearDefense.