China Cashes In

0 Comments | Insight on the News, Jan 24, 2000 | by J. Michael Waller

CalPERS rejects all military and espionage concerns and goes even further by asserting that it doesn't care whether it invests in Chinese enterprises which act in ways harmful to the United States. A lengthy statement from the CalPERS public-relations office says CITIC Pacific is "a highly respected investment house in Hong Kong, led by a Stanford graduate." CalPERS insists that CITIC Pacific isn't affiliated with CITIC though the latter is a shareholder, but the Wall Street Journal describes CITIC as "the parent of CITIC Pacific" and says the latter is the Beijing conglomerate's "Hong Kong-listed unit." COSCO, according to the pension fund, is completely benign as "the second-largest shipping company in the world, with a significant employee population in the San Diego area." China Resources, claims CalPERS, isn't what critics say it is; rather, it is "the principal world outlet for Chinese arts and crafts."

CalPERS says Thompson's espionage allegations about China Resources are unproved, "nor is information of this type relevant to purchasing decisions by the pension fund."

"That explanation right there illustrates why we need full transparency and disclosure" counters Assemblyman Steve Baldwin, vice chairman of the California Assembly's Education Committee. Baldwin tells Insight, "If we can't even depend on our own state pension fund to tell us the truth, we've got a real problem."

CalPERS justified its holding of CITIC Pacific, China Resources and COSCO Pacific by saying that the Texas teachers pension fund also owns shares. But instead of attacking the Investors Business Daily report, Texas took the allegations seriously and acted. State Rep. Suzanna Gratia Hupp approached all her colleagues and the board members of teacher pension funds. The funds eventually decided to divest from the PLA merchant marine. The Texas Teachers' Retirement System claims the divestment was part of the normal rotation of its portfolio.

From Capitol Hill, Reps. Spencer Bachus, an Alabama Republican, and Dennis Kucinich, an Ohio Democrat, sent letters to all 50 state treasurers and attorneys general last August and again in November, urging them to review state investment portfolios for stocks and bonds in foreign-government-related firms that may threaten U.S. national security.

Response has been mixed. Iowa state Treasurer Michael Fitzgerald, a Democrat, strongly defends the Iowa Public Employees Retirement System's investments in CITIC, COSCO and China Resources, even though those investments (totaling less than $2.5 million) are relatively small. Contrarily, Drew Pearce, Republican president of the Alaska state Senate, says she supports a national-security audit of her state's $30 billion retirement fund. In the Golden State, some California lawmakers want to challenge CalPERS. Baldwin tells Insight he intends to introduce a bill this spring mandating that the state-employees' fund disinvest from Communist Chinese enterprises.

In the nation's capital, meanwhile, momentum is building to clamp down on governments and their corporate affiliates that raise money in U.S. markets for terrorism, proliferation of weapons of mass destruction, wars of extermination and building nuclear missiles aimed at U.S. cities. On the surface, this seems noncontroversial. But apart from the handful of investment bankers who make fortunes from such deals, and former U.S. officials peddling influence for Beijing, there still is a concern that empowering the SEC to monitor stock and bond offerings would harm the free flow of capital.