Thank you.
I would like to thank members of this committee for inviting me here to give evidence today. I sincerely hope that this inquiry can be part of the more honest conversation about the very real risks for ordinary Canadians of their pension funds being invested in Chinese stocks and government bonds. These risks are far too often ignored in the pursuit of short-term gains for too many fund managers distracted by the allure of China's financial markets and a myth that China is too much of an economic opportunity to ignore.
The research that Hong Kong Watch has undertaken over the last 18 months into Canadian pension funds has warned that some of Canada's largest publicly controlled pension funds may have exposure to Chinese companies that are involved in human rights violations in the Xinjiang region. A year ago, we found that the Canada Pension Plan Investment Board and provincial pension funds, like CDPQ in Quebec and BCI in British Columbia, had direct holdings in Chinese technology companies blacklisted by the U.S. for their links to internment camps in Xinjiang and other large technology companies complicit in oppression in China, including Alibaba and Tencent.
I am happy to say that many of these funds have divested most of these direct holdings, but some remain passively exposed to index tracking funds such as MSCI China and MSCI Emerging Markets, which hold 12 and 13 companies, respectively, that are linked to Uighur forced labour.
In the case of the CPPIB, its most recent holdings, published on March 31, 2022, confirmed that it has $6.4 billion exposed to MSCI China and $7.7 billion exposed to MSCI Emerging Markets. Meanwhile, the Royal Bank of Canada, through its partnership with BlackRock, is offering pension fund products directly to the Canadian public which track the MSCI Emerging Markets index. Sadly, the current information these funds provide publicly is far too opaque for the ordinary lawmaker, let alone the ordinary Canadian citizen, to have a proper understanding of their pension fund's exposure to China.
Most of the provincial and federal pension funds I've looked at do not publish a regular and up-to-date list of their full holdings. In some cases, the holdings listed are out of date by a year.
The other issue regularly encountered includes pension funds outsourcing their fund management to private fund managers of private equity firms, which, in effect, outsource human rights and governments' due diligence to third parties.
It may not be sexy, but there is an urgent need to require Canadian pension funds to regularly publish their full holdings publicly, the holdings of their private funds managers and their passive exposure index funds like NSCI.
More broadly, I believe investing in China is increasingly incompatible with upholding environmental, social and governance criteria, which all major pension funds in Canada claim to do. Over the past few years, rising investment in Chinese stocks and bonds has coincided with the boom in ESG investing. According to Bloomberg, ESG assets passed $35 trillion in 2020, to become a third of total global assets under management, yet many have now concluded that investing in Chinese stocks and bonds is incompatible with ESG, including leading figures in the investment community like George Soros and Baroness Helena Kennedy.
Taking the “E” in ESG, climate activists have long argued that investment in Chinese state companies, like Sinopec, which stand accused in some cases of producing higher levels of carbon emissions than some entire developed countries, can hardly be considered beneficial to the environment.
When it comes to the “S” in ESG, human rights groups like Hong Kong Watch have warned investors about the rising social risks of investing in Chinese companies linked to forced labour when larger technology companies, like Alibaba and Tencent, are working hand in glove with the Chinese state to surveil the populace and censor the Internet.
Looking at the “G” in ESG, Xi Jinping’s crackdown last year on the technology and education sector, and Putin's war in Ukraine have raised legitimate governance risks in a country that has no separation between private enterprise and the state. One man can wipe out whole industries at the flick of a pen.
The purging of reformers from the central committee at the recent party congress and the doubling down on zero-COVID policies only increase governance risks of investing in China, and have led to the mass protests we are currently witnessing across China. I believe it is well past time that law-makers consider sensible regulations to define ESG, to label China as an ESG risk and to introduce a blacklist like the U.S.A.'s to restrict investment in Chinese firms with questionable human rights, environmental and governance credentials.
Finally, I urge the committee to invite pension funds to give evidence and explain why they are so happy to operate under a smokescreen that deprives the Canadian people of the opportunity to fully understand where their pensions are being invested and the real risks involved.
Thank you.