Texas has adopted an anti-China approach from its state leaders, at least the Lone Star State argues that is has done so.
The state, however, has at least $9 billion invested in China. This investment exists in the face of Gov. Greg Abbott and other state leaders repeatedly speaking out against the Chinese Communist Party (CCP) and the nation's human rights abuses.
The $9.1 billion only includes state-level funds, and not the 92 local funds across the state.
In 2021, Abbott signed a law designating China as a “hostile nation” and Attorney General Ken Paxton compared the country to “1930s Germany.”
But seven of Texas’ pension funds totaling $9.12 billion are invested in Chinese companies, the majority of that share with large companies like Tencent and Alibaba.
A spokeswoman for the governor, Nan Tolson, said Abbott was actively dissuading Texas companies from doing business with firms associated with oppressive governments.
“Gov. Abbott proudly signed Senate Bill 2116 (the Lone Star Infrastructure Protection Act) into law during the 87th legislative session, which prohibits Texas businesses and governments from contracting with entities controlled by the governments of China, Iran, North Korea and Russia,” Tolson told the Austin Journal. “Gov. Abbott will continue to work with the legislature to determine more ways to best protect both the overall security and prosperity of Texas as well as the retirement accounts of those who worked so hard for these benefits.”
When he signed the bill June 7, 2021, Abbott said Texas was the first state in the nation to pass such a law. He said it would safeguard the U.S. as well as the state from nefarious actions by dangerous countries seeking to damage the power grid, water treatment plants, communications systems or cyber networks.
“I just signed a law that protects our critical infrastructure from hostile nations seeking to harm the U.S. or Texas,” Abbott said.
But some informed observers want more action and less talk. They say Texas needs to put some teeth into its words and this law.
“You make these huge investments in the Chinese economy even though you face not only economic risk, you face a lot of political risk doing that,” John Diamond, director of the Center for Public Finance at Rice’s Baker Institute of Public Policy, told San Antonio Express-News. “It doesn’t really make sense."
Diamond said on one hand, Texas says it's going to be tough with China, but on the other hand it's quick to chase returns when it comes to investments.
“It’s not just the human rights, which I think has clearly gotten worse over a period or time, but how individuals or companies are treated," state Sen. Paul Bettencourt (R-Houston), who serves on the Senate Finance Committee, told the San Antonio Express.
He added that he expects the legislature to consider divesting from China.
"It’s not the same governmental structure that we’re used to, and the rules can change rapidly, as we’ve seen, for other companies and for investments," Bettencourt said. "That’s one of the downsides of investing in an environment that does not have a long history of having a stable environment for capital."
Tim Lee, president of the Retired Teachers Association Board, told the San Antonio Express it was an issue worth exploring.
“I think it’s worth asking those questions sometimes,” Lee said. “But if elected officials become too involved in how pension funds make those decisions, the slippery slope is elected officials saying we were successful with ‘x,’ now you should do ‘y.’”
He thinks that it is better for financial decisions to remain with the specialists at the pension fund.
“The thought process is that even the U.S. will not be the best performing market year in and year out and holding a global portfolio will over time be more efficient and less dependent on any one market,” Britt Harris, president and CEO of The University of Texas/Texas A&M Investment Management Co., told the San Antonio Express. “Over the last decade that assumption has been incorrect as the U.S. markets have generally led the world year in and year out."
He said that may change.
"Our mandate is to invest as effectively as we can within the laws and policies that apply to us. China is now the second largest market in the world for both stocks and bonds. We comply with all state and federal laws, including sanctions," Harris said. “The legislature, in its wisdom, has legislated what we must be transparent about and what we must keep confidential. They made that tradeoff because they recognize a balance must exist, and they want the funds to achieve their assumed rate of return, which they likely would not if they were prohibited from investing in professionally managed private funds.”