Big Three don't let politics get in the way of weapons profits

The biggest three asset managers in the world are Vanguard, Blackrock and State Street (the "Big Three"). They have more than $20 trillion in combined assets under management – a sum greater than the gross domestic product of every single nation but the United States. Blackrock and State Street have previously received public criticism for their China investment practices.

The Vanguard Group has become one of the People’s Republic of China’s (PRC) leading financial backers and business partners.

Vanguard is continuing to invest in Chinese companies linked to the People's Liberation Army (PLA) despite growing scrutiny, a new report has revealed.

The Coalition for a Prosperous America (CPA) reported that the Vanguard Group has invested in 2,100 Chinese A-share companies, exposing U.S. investors to PLA's subsidiaries despite growing strategic tensions between Washington and Beijing.

The Vanguard Group - cross-owned by BlackRock - has roughly $8 trillion in global assets under management (AUM), making it the world’s second largest asset manager and single largest mutual fund provider. BlackRock is the world's largest asset manager, with US$9.42 trillion in assets under management as of June 30, 2023.

CPA wrote that Vanguard's fund has invested in "60 subsidiaries of Chinese Military Industrial-Complex Companies (CMIC)" and "20 companies denied access to U.S. technology because they are deemed "Military End Users" (MEU)."

Vanguard FTSE Emerging Markets ETF has invested in A-share in Chinese companies linked to China's military-industrial complex.  Many of these A-shares are Chinese companies acting as an extension of the People's Liberation Army-backed companies or state-owned defense conglomerates. Vanguard's holding of the A-shares outstrips the shares held by Blackrock's EM fund, which has holdings in 402 A-share companies. Another fund, State Street, holds stocks in 778 A-share companies in its EM funds. 

 

One example of Vanguard's investment is an investment into a subsidiary linked to the Aviation Industry Corporation of China (AVIC), which makes Beijing's most advanced J-20 stealth jet, based initially on stolen U.S. technology.

CPA is a bipartisan national organization representing U.S. domestic companies across different sectors and industries of the economy. CPA's latest report draws attention to the loophole large asset management companies use to pour even people's retirement savings into PLA-linked companies.

CPA has identified the following holdings in Vanguard’s flagship emerging markets index fund:

• 60 subsidiaries of Chinese Military Industrial-Complex Companies (CMIC);
• 56 subsidiaries of Chinese Military Companies operating in the United States to obtain advanced technologies and expertise in support of the People’s Liberation Army’s (PLA) modernization goals;
• 20 companies denied access to U.S. technology because they are deemed a “Military End Users” (MEU) or other Chinese entity attempting to acquire items in support of the PLA’s modernization program; 
• 8 Chinese companies excluded from U.S. commercial markets for violating the Uyghur Forced Labor Prevention Act (UFLPA); and
• Numerous Chinese companies specializing in quantum information technologies, artificial intelligence, and microelectronics, the enhanced capability of which a new Presidential Executive Order calls “an unusual and extraordinary threat to the national security of the United States.”.

American investments in A-shares support China’s economic growth, its national security complex,

and its human rights abuses. A relatively small number of companies in this expansive network are

denied access to sensitive U.S. technology that could be diverted for military purposes. Even fewer

face capital markets sanctions or restrictions by the U.S. government of any kind. The investments

that Vanguard, BlackRock, and State Street make in these publicly traded companies are limited only

by how much money the Chinese government is prepared to accept.