LDN - Business

Exclusive: Trump pressed to halt federal pension investments in China's ZTE, Hikvision

[April 21, 2020] By Alexandra Alper

WASHINGTON (Reuters) - Lawmakers and former officials are making a last ditch push to persuade the Trump administration to halt plans to invest billions of federal employee retirement dollars in Chinese companies that Washington suspects of human rights abuses or threatening U.S. security, according to sources and documents seen by Reuters.

The campaign, which includes letters and calls from Republicans and a sharply worded memo shared with White House Chief of Staff Mark Meadows, coincides with heightened U.S.-China tensions over the origins of the coronavirus pandemic.

At issue is whether administrators of the Thrift Savings Plan (TSP), a retirement savings fund similar to a 401(k) for federal employees and members of the military, should allow its $50 billion international fund to track an index that includes some China-based stocks of companies under scrutiny in Washington.

Among the Chinese companies in the index that have drawn the ire of some in Washington who see China as America's biggest economic and geopolitical threat is surveillance firm Hangzhou Hikvision Digital Technology, which was placed on a trade blacklist last year because its technology is used in detention camps for China's Uigher Muslim minorities.

The fund would also invest in telecoms equipment company ZTE , which was penalized by the U.S. government for violating U.S. sanctions.

For China hardliners, the matter has taken on greater urgency because administrators have begun opening custodial accounts abroad to make investments due in the second half of 2020.

"Are we very soon going to witness ... federal employees ... being, in effect, unwittingly compelled to fund with their retirement dollars a number of Beijing's most egregious corporate national security and human rights abusers?" asked Roger Robinson, a former White House official in the Ronald Reagan administration who has tracked the issue closely.

The Federal Retirement Thrift Investment Board (FRTIB) which administers the TSP, said all of its peers are making similar investments and that it "would be a lagging outlier amongst retirement savings plans" if it doesn't expand its investments, according to spokeswoman Kim Weaver.

The White House and the Department of Labor, which oversees the board, did not respond to requests for comment.

Trillions of dollars worldwide passively track benchmarks which are compiled by third party index providers based on a range of criteria, including companies' market capitalization, as opposed to fund managers picking the stocks themselves.

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U.S. President Donald Trump participates in the daily coronavirus task force briefing at the White House in Washington, U.S., April 20, 2020. REUTERS/Jonathan Ernst

When a consultant cited higher returns were possible, the FRTIB decided in 2017 to switch the benchmark for its international stock fund in 2020 to the MSCI All Country World ex-U.S.A. Investable Market Index, which represents 99% of world equities, including Canada, China and other emerging markets.

The plan hit road bumps last year when Republican Senator Marco Rubio and Jean Shaheen, a Senate Democrat, proposed legislation that would prevent investments in China, flagging insufficient levels of accounting and financial disclosure at Chinese firms, in addition to national security and human rights issues.

But the legislation languished, spurring a final campaign to prevent the change.

A person familiar with the matter said a handful of former government officials provided to former congressman Meadows a memo dated March 7, the day after U.S. President Donald Trump tapped him to be White House Chief of Staff.

The memo argued that if Trump did not act, by replacing FRTIB board members or through an executive order, his critics would claim Trump took no action to avoid "federal employees being compelled to invest in Chinese and Russian companies that have undisclosed material risks due to their roles in threatening our national security and abusing human rights."

Meadows, who had sponsored companion legislation to Rubio's bill in the House of Representatives, did not respond to a request for comment through the White House.

Top lawmakers have raised the issue directly with the administration, according to people familiar with the matter. Rubio discussed the issue with Trump in the last few months, a congressional aide said.

Republican congressmen Mike Gallagher and Jim Banks have addressed letters to Department of Labor Secretary Eugene Scalia, two aides said.

In one dated April 6, Banks called on Scalia to explain how the agency plans to inform investors of the risks of owning shares in companies that don't comply with U.S. financial disclosure requirements and the implications of investing in firms that are under U.S. sanctions.

"I urge you to do everything in your power to reverse the TSP Board's decision," Banks wrote.

(Reporting by Alexandra Alper; Additional Reporting by Michelle Price; Editing by Chris Sanders and Grant McCool)

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