Imaginechina via AP Images
Hikvision, a U.S.-blacklisted Chinese surveillance company, gets millions from BlackRock.
If we are ever to get serious about containing China as a geo-economic and strategic challenge, we might begin with our own fifth column—U.S. companies, especially on Wall Street, that profit immensely from the status quo. Indeed, the history of the U.S. letting China into the WTO with no meaningful conditions dates back to a deal brokered by Robert Rubin in 1999, in which the U.S. would cut China slack for its other predatory trade practices as long as Wall Street companies, such as those long associated with Rubin, like Citigroup and Goldman Sachs, could get a big piece of the China action.
Since then, American corporations have profited from myriad financial deals, from outsourcing production to China (bribed to build state-of-the-art factories), to taking advantage of near-slave labor conditions to cheapen production costs, to sharing technology with Chinese “partners”. All of this has left the U.S. dangerously reliant on Chinese technology and supply chains.
Whenever the argument is made that we should re-shore production, whether in solar, wind energy, artificial Intelligence, drones, or other advanced products, the counter-argument is made that this would raise costs because China produces the stuff cheaper—often because of earlier predatory trade practices and slave labor. Thus, the dependence continues.
The financial industry’s contribution to the China syndrome is the most insidious, both because it tends to be hidden, and because Wall Street has so much influence with administrations of both parties. A telling example is BlackRock, the world’s largest investment company, with some $6.5 trillion (not a typo—trillion) assets under management.
BlackRock’s CEO Larry Fink, a Democrat, was heavily promoted to be Biden’s treasury secretary. Several BlackRock alums have senior posts in the Biden administration, including National Economic Council chief Brian Deese, who previously served as BlackRock’s global director of sustainable investing, a pet project—some would say a greenwashing initiative—of Larry Fink. It falls to Deese to sort our diverse national economic objectives, from industrial to environmental to labor, when it comes to resetting the U.S.-China relationship.
With its trillions of dollars in global investments, it would be surprising if BlackRock had not invested in China. What’s especially troubling is the nature of some of its investments.
Under U.S. law, the government maintains an “entity list” of Chinese companies that are barred per se from U.S. commercial or trade relations because of national security or foreign policy concerns. These could be entities that spy, or steal trade secrets, or that repress the Chinese people to a greater degree than usual. These companies are flatly blacklisted from buying U.S. products or selling to U.S. companies.
At the very least, BlackRock’s investment in these two companies should be a gross embarrassment and a contradiction of U.S. policy goals.
Yet BlackRock is an investor in two Chinese companies that were added to the U.S. blacklist in October 2019, Hikvision and iFlytek. Both companies are involved in the surveillance industry, and both were among 28 Chinese companies added to the entity list for repression of the Uighur population in Xinjiang.
Hikvision advertises itself as the world’s largest manufacturer of surveillance technology. iFlytech is a voice recognition and AI company that is promoted as useful for surveillance. Both are companies at the forefront of China’s push to be the world leader in surveillance and AI. It is hard to think of a sector with more serious implications for where commerce meets national security meets human rights.
According to SEC filings, BlackRock’s investment in Hikvision is valued at over $15 million—not a massive holding, but not chump change either. It actually increased its stake after Hikvision was blacklisted.
BlackRock’s total investment in China is about 2 percent of its worldwide holdings. The investment in iFlytech is much smaller, but is one of several Chinese companies included in BlackRock’s $43 million “China A Opportunities Fund,” according to its SEC filings.
Technically, the entity list bars trading with these companies, not investing in them. But obviously, if a company is sufficiently harmful to the U.S. national interest that it should be barred from commercial relations, investing in it is even worse. At the very least, BlackRock’s investment in these two companies should be a gross embarrassment and a contradiction of U.S. policy goals.
As Team Biden resets the U.S.-China relationship, clarifying the use of the entity list, as well as the broader question of U.S. private investment in China, is one of many complex challenges. A related issue is where to leave Trump policies in place and where to revise them.
Hikvision and iFlytek were among dozens of Chinese companies added to the blacklist under Trump. That doesn’t mean this was bad policy. On the contrary, it’s another example of areas where Trump’s superb U.S. Trade Representative, Robert Lighthizer, was willing to break with the trade orthodoxy that preached free trade but allowed China’s state-led economy to have its way with the U.S. economy as long as multinational corporations and banks made a killing.
The Biden administration still needs to set criteria on how to deal with Chinese state controlled companies. For instance, how to treat U.S. investment in Chinese state-owned or controlled entities connected to the Chinese military that are listed on stock exchanges.
I’ve been an admirer of Brian Deese, for the way he has encouraged the president to seize the moment, think big, and not shrink from very large-scale public investments and progressive taxation to finance them. People do change and grow—Biden himself is proof of that.
BlackRock CEO Fink is doubtlessly pleased that a former senior colleague is making economic policy for President Biden. Deese presumably remembers that his employer is now the American people. If anything, the influence should run the other way—and Deese should advise his former patron to clean up his act.
