BlackRock and MSCI face congressional probes

Lawmakers in Congress have initiated a formal investigation into BlackRock, the world’s largest asset manager, and MSCI, the leading index provider, over their involvement in channeling American investments into Chinese firms that have raised concerns in the United States regarding security and human rights issues. The probe comes at a critical juncture in US-China relations, as both nations engage in economic disputes and heightened military posturing.

The House Select Committee on the Chinese Communist Party is spearheading the inquiry, with the primary goal of understanding the extent of US investment flows into China and its implications on the country’s policy towards China. According to the Wall Street Journal, the committee is alarmed by the potential threats to national security and human rights values posed by these investment practices.

In a letter seen by the WSJ, the congressional panel accuses BlackRock and MSCI of exacerbating the national security threat by directing American investment money into Chinese companies that are on US “red flag lists.” Some of these firms have been implicated in supporting Chinese military interests or have been linked to human rights abuses in China’s Xinjiang region, where the Uyghur population resides.

The investigation has revealed that BlackRock’s funds and MSCI’s emerging markets indexes include stocks from 60 companies flagged by the US government. In total, BlackRock has invested a substantial $429 million through five of its funds in these companies.

In response to the probe, BlackRock has emphasised that it provides clients with various strategies for investing in or excluding China from their portfolios. The majority of investments in China are channeled through index funds, with BlackRock being one of 16 asset managers offering US index funds invested in Chinese companies. The asset manager assures compliance with all applicable US government laws and states its willingness to engage directly with the Select Committee on the issues raised.

Similarly, MSCI has acknowledged the inquiry from the House panel on China and is currently reviewing its investment practices.

As US-China tensions continue to escalate, the trade of economic blows and restrictions on critical components has intensified. The US has limited China’s access to essential chip components used in military hardware, while China has responded by restricting the export of metals crucial for semiconductor manufacturing.

The congressional investigation into BlackRock and MSCI’s investment practices adds to the complexity of the US-China relationship, further impacting investment decisions and bilateral ties between the two superpowers. The outcome of the probe may have significant implications for the future of investment flows between the US and China.