By Eva Fu
BlackRock is closing a China-focused offshore fund amid congressional scrutiny over its alleged role in directing U.S. dollars to blacklisted Chinese firms.
In a recent letter to shareholders, BlackRock Global Funds Chairwoman Denise Voss said the world’s largest money manager will close the China Flexible Equity Fund over a “lack of shareholder interest” and the investment cost to keep the fund running, which she noted is “not in the best interests of shareholders.”
BlackRock intends to liquidate all assets under the fund and redeem any outstanding shares by Nov. 7. Existing shareholders have the options to switch their investments into another fund, sell back their shares ahead of the liquidation date, or receive automatic payments for the shares when the fund closes down.
Opened in October 2017, China Flexible Equity Fund had an asset value of about $21.4 million as of late August. It recorded a negative 16.7 percent return in 2021, a number that nearly doubled in 2022, to negative 30.5 percent.
The fund closure came just a month after the House Select Committee on the Chinese Communist Party initiated a probe into BlackRock and investment index provider MSCI regarding the alleged investments in Chinese companies the U.S. government has deemed problematic.
The two firms together facilitated investment into more than 60 Chinese entities hit with U.S. sanctions over national security or human rights issues, the lawmakers said, noting that their review was far from comprehensive and thus the actual number of benefited Chinese companies is likely higher. Across five funds, BlackRock has invested more than $429 million in such Chinese firms against U.S. interests, according to the House committee.
One of the top invested Chinese entities for China Flexible Equity Fund is Tencent, a Chinese state-backed tech giant that had aided Beijing in silencing dissent and spreading propaganda through its popular messaging app WeChat. Two others are state-owned hydropower operator China Yangtze Power and Nari Technology, the country’s largest supplier of electric power equipment.
In a response to the congressional probe, BlackRock told The Epoch Times that it “complies with all applicable U.S. government laws” regarding “all investments in China and markets around the world” and noted that it is one of 16 asset managers offering U.S. index funds that invest in Chinese companies.
The firm didn’t immediately respond to a request for comment regarding the China fund closure.
But across the board, there are growing signs of wariness from U.S. investors toward the Chinese market. The long-hoped-for economic recovery after the regime lifted its stringent COVID-19 policies hasn’t happened. Instead, the country faces a slowing economy, with a sharp drop in trade, millions of young Chinese people struggling to find jobs, a housing crisis, and growing tensions with the United States.
In August, President Joe Biden signed an executive order to restrict U.S. investments in China in advanced technologies such as artificial intelligence, quantum technology, and semiconductors, citing risks for U.S. national security.
For a U.S. investor, “there is nothing bigger than the current trade tensions between the U.S. and China,” Gary Dugan, chief investment officer at the UAE-based Dalma Capital, a global alternative investment platform and an avid China investor, told The Epoch Times.
China’s regulatory environment also presents increasing challenges to foreign investors. In July, China officially expanded an anti-espionage law that could criminalize regular business activities. Authorities this year have also ordered a raid on Bain & Co.’s office in Shanghai and due diligence firm Mintz Group’s office in Beijing. In May, it told local operators of “critical information structure” to stop buying products from U.S. chipmaker Micron Technology.
“Increasingly, I hear from American business that China is uninvestable because it’s become too risky,” Commerce Secretary Gina Raimondo said on Aug. 29 during an official visit to China. She said she had made 120 to 150 calls with business and labor leaders in preparing for the trip.
Foreign investors have dumped Chinese stocks at a record pace in August as China’s economy continues to decline. Data from Hong Kong’s Stock Connect trading scheme show that sales by offshore traders on the Chinese equity market reached about $11 billion over three weeks since Aug. 7.
Early in August, HSBC said it had cut its Chinese commercial property exposure by $5.5 billion by the end of June compared with last year. Standard Chartered also reduced exposure to $3 billion, from $3.7 billion a year ago.