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The Federal Government Can’t Counter China on Its Own

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(nantonov/Getty Images) The states, and America’s nonprofit and private sectors, must play a role, too.

As the Biden administration begins to shape its China policy, from supporting Taiwan against Chinese provocations to strengthening export controls on entities aligned with the People’s Liberation Army, it is increasingly clear that it is following in its predecessor’s footsteps. Other key players in this conversation, however, are still formulating their respective approaches. Those actors are U.S. states, and they have a significant role to play in the unfolding great-power competition between China and the United States.

Take Chinese investment in state pension funds. At the federal level, the Trump administration spoke candidly of the risk posed by investing federal employees’ pensions in China through the Thrift Savings Plan (TSP). Such investment “would expose the retirement funds to significant and unnecessary economic risk, and it would channel federal employees’ money to companies that present significant national security and humanitarian concerns,” wrote then-national-security-adviser Robert O’Brien and then-National Economic Council–director Larry Kudlow in May 2020.

Many U.S. states are reckoning with similar concerns posed by their own pension funds’ investments in America’s principal geopolitical rival. The California State Teachers’ Retirement System (CalSTRS) and the New York State Teachers’ Retirement System were long invested in Hikvision, the now-blacklisted company notable for making surveillance devices for China’s network of concentration camps in Xinjiang. The California Public Employees’ Retirement System (CalPERS), too, has been repeatedly questioned about its connections to Chinese-government entities.

But these egregious examples hide the more mundane challenge facing most U.S. states: investing pension funds in China, even if it doesn’t directly subsidize Chinese human-rights abuses or further Beijing’s military ambitions, places undue risk on already-burdened state pension systems. The opacity of Chinese corporate governance, combined with China’s official policy of refusing to comply with the oversight standards of bodies such as the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB), makes such investments inherently risky.

What’s more, investing state pension funds in Chinese companies exposes states to China’s political whims and its proclivity for economic blackmail, with billions

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