Blackrock Pressed To Divest of All Chinese Assets By NPLC After COVID, Human Rights Abuses

Update (1355ET): Just minutes after the "threat" from China, the National Legal and Policy Center (NLPC) issueed a press release asking Blackrock - the world's largest asset manager - to divest its customer's money from the 137 Chinese companies currently listed on American stock exchanges.

The letter was addressed to BlackRock Chair and CEO Larry Fink:

Of the 137 Chinese companies currently listed on American stock exchanges, eleven are at least 30% owned by the Chinese government and all are "under the influence and ultimate control of the Communist Party of China."

BlackRock, the world's largest investment manager, recently divested itself of certain companies producing thermal coal in response to demands by anti-fossil fuel activists. In the letter, NLPC Chairman Peter Flaherty cited this "precedent" and argued that Chinese companies "that manufacture equipment for Xi's surveillance state or that are dominated by the People's Liberation Army raise even bigger ethical questions."

"China is the world's worst human rights abuser and greatest threat to world peace through its military buildup and increasingly imperial ambitions," Flaherty writes.

"Some investment managers argue that factors like human rights should not be considered in investment decisions because they have a fiduciary duty to investors to obtain the best possible return. Of course, you have specifically rejected this argument by applying a host of ESG litmus tests to BlackRock's investments."

"In light of your self-appointment as moral arbiter for corporate America, you cannot now pick and choose which moral imperatives you will honor and which you will ignore. Unless BlackRock divests from Chinese companies, your 'leadership' will amount to empty virtue-signaling."

We suspect this is a trial balloon, aimed at raising President Trump's awareness, since we note that The National Legal and Policy Center (NLPC) is a right-leaning , non-profit group that monitors and reports on the ethics of public officials, supporters of liberal causes, and labor unions in the United States. The Center files complaints with government agencies, legally challenges what they view as abuse and corruption, and publishes reports. The NLPC is described as conservative in nature.

NLPC also cited the risks to American investors who entrust their savings and retirement funds to BlackRock, pointing out that "Chinese companies in which you invest your customer's money are opaque. They do not submit to Public Company Accounting Oversight Board audit standards. They are not compliant with Dodd-Frank."

"Moreover, American retail investors have been repeatedly burned when U.S.-listed Chinese firms have been taken private at lower valuations and relisted on foreign exchanges."

Simply put, with the escalations in recent days, the trade war just morphed into a capital war.

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Earlier today, we published the latest note from Rabobank's Michael Every, who warned that "US-China Relations Are About To Fall Off A Cliff", following the sharp escalation in diplomatic (and military) tensions between the US and China in recent days, which he laid out as follows:

the US Senate is set for action as soon as this week on approval of a bill that would impose US sanctions on Chinese individuals seen as responsible for human rights abuses in Xinjiang. The Senate has already unanimously passed a first reading of a version of The Uyghur Human Rights Policy Act 2019, and the House passed a stronger form in September. We are hence edging closer to it taking a veto from Trump to avoid it becoming law. Which he did not do on legislation focused on Hong Kong, of course.

Furthermore, the AFP reports another group of Republican senators has proposed The COVID-19 Accountability Act, which if passed will give Trump 60 days to certify to Congress that China has provided a full accounting to an independent body, such as the UN, of what happened with this virus, has closed all its highest-risk wet markets, and has released all Hong Kong activists arrested recently. Failure to do so would authorize Trump to impose sanctions such as an asset freeze, travel bans, visa revocations, and to restrict Chinese businesses’ access to the US banking system and capital markets. (And we are once again back to the Eurodollar weapon given that would mean an inability for China to access USD if so.)  

Notably, there is very little popular sentiment in the US to avoid movement on either of these bills, and no likelihood at all of China moving on either of these issues to try to cap US anger. (Indeed, in Hong Kong, part of one of the bills’ focus, the government is pushing ahead urgently with legislation to criminalise booing the Chinese national anthem, and is flagging the removal of civics from the school curriculum.)

As Every cautioned, echoing what we said yesterday, "either bill would severely impact already dented US-China relations – especially on the back of the US decision on de facto capital controls to China, and the Global Times’ claim of a “tsunami of anger” already leading some in China to consider walking away from the “Phase One Trade Deal” by declaring force majeure. Likewise, did nobody read the op-ed written by USTR Lighthizer which screamed ‘Made in America’? As a former Deputy USTR once told me, as lawyers USTRs had one missive: whether silicon chips or potato chips, more free trade was always better. Well not anymore."

And while the “market” that is USD/CNH is still largely unmoved...

... "so is snow before the avalanche", and as we also said previously, "Trump already has zero rates and the Fed buying trillions in assets, and he and EVERYONE knows they will do even more if markets fall. So why not push back against China to provide political cover?"

So while we wait to see whther Trump decides to go "all in" anti-China sentiment ahead of the election, moments ago Beijing - via its Twitter mouthpiece, Global Time editor in chief Hu Xijing, issued a preemptive warning, saying that "to counteract the abuse of anti-China litigation over COVID-19, Beijing is already preparing to take the necessary punishment measures against some members of the US Congress, the state of Missouri, and relevant individuals and entities."

While the actual article does not identify what measures are being taken, it does warn that China won't just strike back symbolically, but impose countermeasures that could make them feel the pain.

The bottom line is that as the Trump Administration makes China central to the re-election campaign, Beijing won't just "stand there" and take it, which means that any incremental push by either said will be met - for the first time since the trade war which concluded with a tentative truce in January - with more than just jawboning, and once words turn to deeds, it will be very difficult to de-escalate before the November 3 election.