A letter, written by the National Security Adviser, Robert O’Brien and the National Council Chair Larry Kudlow to the U.S Labor Secretary Eugene Scalia, stated that the White House does not want the Thrift Savings Plan, which is a federal employee retirement fund, to have money invested in Chinese equities and outlined the risks involved in such decisions.
In her response, Scalia wrote to Michael Kennedy, the chairman of the Federal Retirement Thrift Investment Board, sharing the Kudlow/O’Brien letter.
She stated that “the concerns expressed in the letter from the White House have also been voiced by both Republican and democratic members of the Congress, as well as in the extraordinary recent joint statement by the chairs of the SEC and PCAOB. SEC Chairman has personally reinforced these investor protection concerns to me”.
According to the letter from the White House, Federal Retirement Thrift Investment Board plans to “depart from the Board’s established index and invest in the International Stock Investment Fund (I Fund) to track one that maintains Chinese equities is risky and unjustified”
The transactions to effectuate the change on the I Fund’s benchmark index are expected to begin as early as the first week of June, following the decision of the Board in November 2019 to add Chinese listed equities to the I Fund.
The letter from the White House published by Fox Business stated that “it has come to our attention that billions of dollars from our federal employees’ retirement funds in the Thrift Savings Plan (TSP) will soon be invested in Chinese companies.
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This actions 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 because they operate in violation of U.S sanction laws and assist the Chinese Government’s efforts to build its military and oppress religious minorities.
Further, the federal Retirement Thrift investment Board (Board) is set to implement these plans during a time of mounting uncertainty concerning China’s relations with the rest of the world, including the possibility that future sanctions will result from the culpable actions of the Chinese Government with respect to the global spread of the Covid-19 pandemic.
In view of these considerations, we do not believe that proceeding with the investment of the retirement savings of hardworking federal workers in Chinese companies is prudent”
The letter also cited the report from the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB), that Chinese authorities have impeded the PCAOB’s ability to oversee PCAOB-registered audit firms in mainland China and Hong Kong who serve mainland China companies. Thus, preventing PCAOB from conducting inspections of those firms’ audits of Chinese companies in violation of U.S law.
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The letter concludes by saying that “the Board has available alternatives that would permit it to expand its I Fund investment offerings to a broader range of international equities while avoiding the risks of Chinese-listed equities.
Even if the Board believed that the I Fund’s investment should expand to include what MSCI has labelled “Emerging Markets,” there are means by which the Board could make investments, broadly tracking the rest of these markets while excluding China, given the unique concerns associated with companies on Chinese Exchanges”,
“As it has been for decades, the Board therefore may fulfil its statutory obligation to offer federal workers “a reasonably complete representation of the international equity markets excluding the United States equity markets” using “commonly recognised indices without making a risky venture into Chinese companies”,
The White House is expecting response to the letter by 15 May 2020.
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