WASHINGTON • The United States State Department is asking colleges and universities to divest from Chinese holdings in their endowments, warning schools in a letter on Tuesday to get ahead of potentially more onerous measures on holding the shares.
“Boards of US university endowments would be prudent to divest from People’s Republic of China (PRC) firms’ stocks in the likely outcome that enhanced listing standards lead to a wholesale delisting of PRC firms from US exchanges by the end of next year,” Mr Keith Krach, undersecretary for economic growth, energy and the environment, wrote in the letter addressed to the board of directors of American universities and colleges, and viewed by Bloomberg.
“Holding these stocks also runs the high risks associated with PRC companies having to restate financials,” he said.
The warning to endowments opens a new front in the Trump administration’s multipronged campaign against China’s government, businesses and individuals.
The college and university funds represent billions of investment in Chinese companies, according to a 2019 investigation by Bloomberg, driven by the prospect of better returns.
China’s Foreign Ministry yesterday called the US an “important” partner in investment, saying both sides had gained from their financial cooperation.
“Putting up obstacles for such cooperation does not serve the interests of our capital markets,” ministry spokesman Zhao Lijian told a regular news briefing in Beijing, in response to a question about the US warning.
“We urge the US side to create a fair, just and non-discriminatory environment for Chinese companies’ investment in the US.”
Tensions between the two powers are rising over trade, the Covid-19 pandemic and a US presidential election that has fuelled an escalation of anti-China rhetoric.
President Donald Trump’s administration has tightened limits on Chinese university students, ordering new restrictions in June that cancelled the US visas of certain graduate students and university researchers.
The Trump administration earlier this month also went after two of China’s largest tech companies, putting out twin executive orders prohibiting US persons and companies from doing business with ByteDance’s TikTok video app and Tencent Holdings’ WeChat messaging service.
Endowments will be eager to examine the issues the government is raising, Mr Krach said on Tuesday in a Bloomberg Radio interview.
“These boards have a moral responsibility, and perhaps a fiduciary duty, to really look into this, to make sure their investments are clean,” said Mr Krach, former chairman of the Purdue University Board of Trustees.
Tuesday’s warning is part of a larger campaign by US officials to slow the money that has flowed from investment funds into Chinese companies.
Secretary of State Michael Pompeo told state governors in February that some pension funds are playing into China’s hands.
The flow of US pension and endowment cash into Chinese equities has boosted the success of global giants such as online retailer Alibaba Group Holding, as well as rising stars like artificial-intelligence company SenseTime Group, which is now on a list of tech companies banned from doing business in the US.
Foreign equities made up 13.9 per cent of college endowments with more than US$1 billion (S$1.36 billion), according to the most recent data compiled by the National Association of College and University Business Officers for the year ended June 2019.
The State Department letter also warns universities of China’s growing influence on campuses and said the US is accelerating investigations of what it called “illicit PRC funding of research, intellectual property theft and the recruitment of talent”.