Gov. Ron DeSantis wants to prevent the People’s Republic of China from gaining undue influence. Credit: Getty Images
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Florida Gov. Ron DeSantis signed legislation this week that will lead to the divestment of all Florida pension-fund investments in Chinese-owned companies, an extension of policies that state lawmakers have been making in recent years to show their disdain for the Chinese Communist Party.
The law (HB 7071) requires the State Board of Administration (SBA), the state organization responsible for investing the assets of the Florida Retirement System (FRS) Pension Plan and administering the FRS Investment Plan, to develop a plan by September 1 to begin divesting all direct holdings in Chinese companies. The measure requires that the SBA complete the divestment no later than September 1, 2025.
The FRS’ total exposure to Chinese state-owned entities is now estimated at around $223.8 million as of April 30, according to Steve Koncur, director of external affairs for the SBA.
According to the bill’s legislative analysis published on March 15, the FRS’ single biggest investment with a Chinese owned company is the China Construction Bank Corporation, which had a value estimated at $53.6 million. That institution is considered one of the four biggest banks in China, according to Morningstar. The next largest valued entity at $36.3 million was Kweichow Moutan Co., Ltd., which is principally engaged in the production and distribution of liquor products.
Overall, the legislative analysis showed about a dozen of the top Chinese-owned companies, plus 198 holdings — each less than $5 million.
Other states divesting
State Treasurer Vivek Malek, right, argues for removing Missouri State Employees Retirement System money from investments in Chinese businesses. Commissioner of Administration Ken Zellers is on his left (Rudi Keller/Missouri Independent).
Florida is the latest state to pass a law to move away from investing in Chinese-owned companies. Last December, the board overseeing the state of Missouri’s largest state employee pension fund voted to sell most of its investments in Chinese-owned companies, the Missouri Independent reported. And in Indiana, a bill prohibiting the Indiana Public Retirement System from investing in companies controlled by the People’s Republic of China or the Chinese Communist Party was signed into law last year.
Andrew King is a former investment banker and a current venture capitalist who runs Future Union, which tracks public pension investments in China. He says that it may be easier for states who want to divest from other countries to go the route that Missouri did with a board representing a state employee pension fund, as opposed to having a governor or Legislature make such a decision.
“If a committee does this, one that specifically oversees fiduciary duties and maximizing returns and things like that, it’s a little less pernicious because those are not people in the public eye who have different motivations – a/k/a politics. Or grandstanding. Or being visible. They just have an interest in just producing the best returns,” he says.
Having said that, he acknowledges that even though he personally supports states divesting from China, he can’t say that doing so will actually be in the best financial interests for Florida.
“Can I tell you that you’ll actually earn more by getting out of China? I can’t,” he admits. “No one in their right mind that’s a finance person can tell you that it’s good to reduce diversification. It’s better to be diversified. That’s finance 101.”
Zachary Christensen is the senior policy analyst for the Pension Integrity Project for the Reason Foundation, a libertarian think tank. He says that the administrators of public pension systems have a fiduciary duty, which requires them to exclusively consider maximizing investment returns at acceptable risk levels.
“Lawmakers should strengthen and protect that duty,” he told the Phoenix in an email. “Politicians should not micromanage or dictate pension systems’ investment decisions. Regardless of their political leanings, laws forcing public pension systems to invest or divest in green energy companies or avoid investments in certain countries like China are misguided. These moves inevitably cost taxpayers through added risk and additional costs.”
Cuba and others
This is not the first time the Florida Legislature has directed the SBA to develop a divestment plan for all direct holdings in foreign-owned companies. They did so beginning with Cuba in 1993, Iran and Sudan in 1997 and Venezuela since 2018.
And since 2016, Florida’s SBA has been prohibited from investing in companies that engage in an economic boycott against Israel.
Jimmy Patronis, Florida’s Chief Financial Officer. Credit: FL Department of Financial Services.
The new law comes after years of Florida’s top officials indicating that they were targeting China for divestment purposes. Expressing concerns about “their documented cover-up of COVID-19” in 2020, Florida Chief Financial Officer Jimmy Patronis asked all state vendors to inform the CFO’s office if they were “owned or controlled by the Communist Party of China.”
In December of 2021, the Florida Cabinet then directed the SBA to conduct a survey of all of the investments of the FRS to determine how many assets the state has in Chinese companies.
“I would like the SBA to survey the investments that are currently being done,” Gov. DeSantis said in late 2021. “When the legislature comes back they can make statutory changes to say that the Communist Party of China is not a vehicle that we want to be entangled with. I think that that would be something that would be very, very prudent. I also think that our country as a whole but certainly Florida would like to see more production and manufacturing re-shored and we would be a great place to do that.”
The law signed by DeSantis on Wednesday was passed unanimously in both the House and Senate in the 2024 legislative session.
The divestment from Chinese-owned companies comes a year after the state passed a law restricting certain people from China and other “foreign countries of concern” from owning property in Florida. The law was unsuccessfully challenged in federal court, but attorneys representing four Chinese nationals who live in the state have appealed the case, and went before the 11th Circuit Court of Appeals last month, the Associated Press reported.
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