FirstFT: US legislators blast BlackRock and MSCI over China investments

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Good morning. The US House of Representatives’ China committee has accused BlackRock and MSCI of profiting from investments that help the Chinese military and undermine American values and security.

In letters to BlackRock chief executive Larry Fink and MSCI head Henry Fernandez, the top Republican and Democrat on the panel said the companies’ decisions meant that American investors in their funds were “unwittingly funding” Chinese businesses that develop weapons for the People’s Liberation Army.

“It is unconscionable for any US company to profit from investments that fuel the military advancement of America’s foremost foreign adversary and facilitate human rights abuses,” the Republican chair Mike Gallagher and top Democrat Raja Krishnamoorthi wrote.

The politicians said the companies were investing in Chinese groups that the US government has blacklisted because of PLA connections or their role enabling human rights abuses.

They said that BlackRock, the world’s largest asset manager, and MSCI, a compiler of stock market indices, were “facilitating massive flows” of US capital into Chinese army-related groups which was “exacerbating an already significant national security threat and undermining American values”.

But Todd Rosenbluth, head of research at the consultancy VettaFi, questioned why the investigation was focused only on BlackRock and MSCI. “If the government is concerned about US tracker funds investing in these Chinese companies, then it should be looking at all of the funds that are tracking similar indices,” he said. Read the full story.

• More US-China news: The US wants Japan and South Korea to agree that each nation has a duty to consult the others in the event of an attack, part of a White House push to bring its two Pacific allies closer to boost deterrence against North Korea and China.

Here’s what else I’m keeping tabs on today:

• Donald Trump indictment: The former US president said he expected to be charged later on Tuesday in connection with a special counsel probe into alleged attempts to overturn the results of the 2020 US election. Follow the developing story here. 

• Results: Earnings reports are due from Albemarle, DuPont, Ferrari, PayPal, Qualcomm and more. See our Week Ahead newsletter for the full list.

• India: The top court will begin hearing petitions challenging the government’s decision in 2019 to impose direct rule in India-administered Kashmir, revoking the region’s special status.

• Niger military coup: France is set to start evacuating its citizens and other Europeans in Niger after president Mohamed Bazoum, regarded as the west’s staunchest ally in the Sahel, was overthrown last week. Here’s the FT View on the coup, which highlights the west’s policy failures in the Sahel.

Five more top stories

1. A skyscraper in Moscow housing several government ministries was damaged by a drone strike on Tuesday for the second time in three days. Ukraine has not claimed responsibility for the attack, but warned Russia that it meant the war “will soon finally move to the territory of the ‘authors of the war’ to collect all their debts”. Here’s more on the attacks.

• Related: The Biden administration is seeking to increase stretched munition supplies for Ukraine’s counteroffensive against Russian occupying forces, but faces hurdles in ramping up production.

2. One of China’s biggest property developers has abruptly cancelled a share placement, sending its stock down as much as 10 per cent on Tuesday. Country Garden decided to abandon a $300mn share placement on Monday night, dealing a blow to the troubled real estate sector. Read more on China’s property sector woes.

3. Uber has reported its first operating profit on the back of better control of costs, marking a turning point for the chronically lossmaking company after years of heavy spending in a controversial dash for growth. Read more on Uber’s financial turnaround.

4. Exclusive: China’s metals and mining investments overseas are on track to hit a record after topping $10bn in the first half of the year, more than the whole of last year and on track to exceed 2018’s record of $17bn. The investments highlight intensifying efforts by the country to capture resources across the cleantech supply chain. Here are more details on China’s “strategic” investments.

5. HSBC has unveiled its second $2bn share buyback of the year after rising interest rates helped it post bumper quarterly profits of $8.8bn. The performance was largely driven by rising interest rates in the UK and US, which helped boost earnings even though growth faltered in its largest markets of Hong Kong and mainland China. The results strengthen the bank’s hand against Ping An’s activist campaign to split the business.

The Big Read

From semiconductors and electric-car batteries to biotech and telecoms, South Korean companies are crucial players in sectors critical to Washington’s and Beijing’s national security and industrial strategy. But experts, officials and company executives all note that the country has already embarked on an unmistakable — albeit untrumpeted — pivot away from the Chinese economy.

We’re also reading . . . 

Chart of the day

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China’s footwear exports have dropped to levels last seen in 2010, amid slowing factory activity in the world’s second-biggest economy. “Our sector is in misery,” said Eddie Lam, chief executive of Feng Tai Footwear, one of the manufacturers on the front line of China’s economic slowdown.

Take a break from the news

The Apple TV+ series Hijack opens new vistas of wardrobe deconstruction while capturing the broad social and sartorial panorama of contemporary air travel. Subtle colour coding, the hero’s layered look and, mercifully, no sweatpants lend a sly glamour to the Idris Elba thriller.

Additional contributions by Tee Zhuo and Gordon Smith