BlackRock, MSCI Under Fire From U.S. Officials For China Investments

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Investment giant BlackRock (BLK) and index manager MSCI have come under scrutiny from U.S. lawmakers, who accused them of "fueling China's military ambitions."

KEY TAKEAWAYS

• A U.S. congressional committee is investigating BlackRock Inc. and MSCI Inc.
• The committee says the firms are 'facilitating' investment into blacklisted companies.
• BlackRock shares fell, despite the firm saying it will work with the committee on the matter.

The Select Committee on the Chinese Communist Party (CCP) said the two firms "profit from investments that fuel the military advancement" of China, which it referred to as "America’s foremost foreign adversary." The U.S. congressional committee also raised alarm over the companies' Chinese investments that may be linked to human rights violations.

While BlackRock funds invest in China, MSCI doesn't do that directly.2 In 2019 MSCI increased the proportion of China A shares included in its MSCI Emerging Markets Index to 20% from 5%. The index company, which advises investors but doesn't manage investments itself, says this was done to reflect the fact that global investors who use its indexes are increasingly re-evaluating their portfolio allocations of China equities in light of the country’s “growing economic strength and improving market accessibility.”

In a sternly worded letter sent to BlackRock and MSCI, the U.S. committee said "hard-earned" pensions and savings of Americans are "unwittingly" funding companies that develop weapons for, and advance China's efforts for military technology supremacy.1 The committee has asked the two companies to provide information on their due diligence practices when dealing with blacklisted companies, such as those on U.S. government "red-flag lists."

BlackRock shares were off 1.19% on the day but the firm denied any wrongdoing. The investment giant told Reuters that it "complies with all applicable U.S. government laws," and would work with the Select Committee to resolve the matter.

The move by U.S. lawmakers to scrutinize investments comes after a year of rising tensions between the two countries. The Biden administration began looking at U.S. investments back in January, while the two countries have sparred over access to chip technology and rare earths.

The pressure on BlackRock and MSCI could further dent investor appetite for Chinese stocks. Hedge funds bought Chinese stock at the fastest pace since October 2022 over the last two weeks.