America's Military Is Funding China's Military | Opinion

There is nothing more hideous than one military paying for the weapons of its enemy, yet that is exactly what America's soldiers, sailors, and pilots are now doing. They are, inadvertently, financing the tanks, ships, and planes that China's regime is now developing to kill them.

Members of America's armed services have, since 2001, been allowed to participate in the Thrift Savings Plan (TSP), a federal government-sponsored long-term retirement and investment program that is akin to a 401(k). Participants in TSP can invest in Chinese companies, including 22 China-only mutual funds.

As a practical matter, China's companies are uninvestable—or at least investors are not being rewarded for the risk they assume, and are not even in a position to know the risk they are assuming.

Chinese companies have been notorious for misleading investors and, to make matters worse, Beijing had prevented U.S. regulators from gaining access to the audit papers of Chinese companies listed in the U.S. Chinese authorities claimed that such papers, which all other companies must make available for inspection, contained "state secrets."

An August agreement between America's Public Company Accounting Oversight Board and China's Ministry of Finance and the China Securities Regulatory Commission allows inspections in Hong Kong. It is not clear, after the first inspections pursuant to the arrangement, whether Beijing will continue to honor the deal.

In the absence of reliable information, Chinese companies often trade on rumor, making their stocks especially volatile. Last week, for instance, China's stocks soared, up about a trillion dollars in value, on speculation that the Communist Party would relax the draconian "dynamic zero-COVID" rules, which have locked down various parts of the country.

Since then, Chinese officials have slightly loosened rules for arrivals but denied there will be any other relaxation of their disease-control regime. The denials are in line with General Secretary Xi Jinping's comments, made in his October 16 Work Report delivered to the Party's 20th National Congress, that the zero-COVID rules would remain in place.

The jaw-dropping increase in value, apparently fueled by Chinese state entities buying shares, came after stocks dropped $6 trillion in value following the 20th Congress, where the Mao-inspired Xi gained virtually complete control over the ruling organization.

Yet there are more than technical objections to ownership of Chinese stocks. "It's unconscionable that some 35 Chinese companies are presently in the International Fund of the TSP, with hundreds more—including U.S.-sanctioned corporate bad actors—littering the Mutual Fund Window being made available by the Federal Retirement Thrift Investment Board," Roger Robinson, former chairman of the U.S.-China Economic and Security Review Commission, told Newsweek this month.

By executive order, President Donald Trump in November 2020 prohibited Americans from investing in 31 of China's military-linked companies. But why is investing in China's non-military companies also objectionable?

Chinese President Xi Jinping waves during the
Chinese President Xi Jinping waves during the meeting between members of the standing committee of the Political Bureau of the 20th CPC Central Committee and Chinese and foreign journalists at The Great Hall of People on October 23, 2022 in Beijing, China. Lintao Zhang/Getty Images

First, Xi has rigorously imposed the doctrine of civil-military fusion, which permits the Chinese military to have access to everything that civilian institutions, including companies, possess. The doctrine is a natural outgrowth of the Communist Party's top-down sociopolitical system, in which no person or institution can defy a Party demand. The civil-military distinction, as a practical matter, does not exist in China.

Second, Xi has vigorously enforced the rule, in the Communist Party's charter, that every company must have a Party cell if there are at least three employees who are Party members. That rule has existed for years, but it was rarely implemented against private and foreign companies. As Andrew Batson of Gavekal Dragonomics, a Beijing-based research group, told Nikkei Asia, "What's happened under Xi is that he strongly encouraged people to actually follow this requirement."

Moreover, China's corporate law states that companies "ought to provide necessary conditions for the activities of Party association." Similarly, the China Securities Regulatory Commission in 2018 required all state-owned listed companies to include "Party-building" in their articles of association.

The Chinese Communist Party, therefore, controls both military and non-military companies, through its cells and by other means. The Party also controls the People's Liberation Army, through its Central Military Commission.

"As it's now clear that President Xi has placed all Chinese companies under the direct control of the Communist Party, it means, because of egregious fiduciary, national security, and human rights concerns, that no Chinese enterprise should be permitted to remain in the investment portfolios of U.S. individual and institutional investors," Robinson notes.

"Investing in communist China today is as foolish as the notion of investing in Nazi Germany in the late 1930s," Kevin Freeman, host of "Economic War Room" on BlazeTV, told Newsweek. "Financially tying our government employees to the future of an adversary is incentivizing disloyalty."

In May 2020, the Trump administration directed the Federal Retirement Thrift Investment Board, which oversees TSP, to exclude Chinese stocks. The board, however, has taken the position that it may invest in stock in Hong Kong-based companies.

That view may not be the last word, however. Sen. Tommy Tuberville (R-AL) last year introduced S.1665, the Prohibiting TSP in China Act. The bill, as its name suggests, would prohibit TSP from investing in companies based in China or the subsidiaries of such companies. The legislation is broad: It would also prevent TSP from offering mutual funds that invest in Chinese companies or their subsidiaries.

Whether Tuberville's bill is tacked onto the National Defense Authorization Act, as advocates hope to do this month, or it is enacted as separate legislation, no Chinese company should receive American retirement cash—especially from those wearing the uniform.

Gordon G. Chang is the author of The Coming Collapse of China. Follow him on Twitter: @GordonGChang.

The views expressed in this article are the writer's own.