WORKERS CAPITAL
Canadian public pension fund investments in China draw heightened scrutiny

The Canadian Press
Mon, May 22, 2023


MONTREAL — Investments in China by Canada's largest public pension funds are facing increased scrutiny amid worsening relations between the two countries and allegations that some of those investments are funding the oppression of China's Uyghur minority.

Recently, representatives of the Ontario Teachers' Pension Plan and the British Columbia Investment Management Corporation, which manages the pensions of B.C. public sector workers, told a parliamentary committee studying Canada-China relations that they had paused new direct investment in China because of the increasing risks associated with that country.

That pause came amid allegations of Chinese foreign interference in the 2019 and 2021 Canadian elections, and of Chinese state actors allegedly harassing Canadians who oppose the Communist Party. Earlier this month, Canada expelled a Chinese consular official, and China retaliated within hours, expelling a Canadian diplomat and saying that Canada had "sabotaged" relations between the two nations.

But Canada's two largest public pension investors — the Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec — say they need exposure to the world's second-largest economy to provide returns for Canadians, but they promise they can invest responsibly in China.

Michel Leduc, a senior managing director with the Canada Pension Plan Investment Board, says the fund is "very cautious about the types of assets that we are acquiring, and the different levels of political and geopolitical risk — rather than completely avoiding what will potentially become the world's largest economy within the next 10, 15 years." The pension plan has 10 per cent of its $536 billion in net assets in China.

Mehmet Tohti, executive director of the Uyghur Rights Advocacy Project, says Canadians' pensions are being invested in companies that benefit from or help enable the Chinese government's persecution of his people.

"Among the companies, many of them are part of the forced labour supply chain," he said in a recent interview.

The UN Human Rights Office said last August that China is committing "serious human rights violations" against Uyghur people in China's western Xinjiang region and called for further investigation into "allegations of torture, sexual violence, ill treatment, forced medical treatment, as well as forced labour."

The Chinese government maintains it is fighting against terrorism and extremism in the region and operates vocational education centres as part of a "de-radicalization" campaign.

In 2021, the Canadian Parliament voted to describe the treatment of the Uyghur people by the Chinese government as a "genocide."

Leduc says that while the fund is cautious about investing in China, he recognizes it's not easy to trace supply chains when it comes to some products, like solar panels, because much of the world's supply comes from a specific region in China.

According to the United States government, almost half of the world's supply of polysilicon — a key material in solar panels — is manufactured in China's Xinjiang region, home to the Uyghur people. The U.S. says that several manufacturers of panels have been accused of using forced Uyghur labour. And because most of the world's solar panel manufacturing takes place in China, it's nearly impossible to tell which panels may include polysilicon from Xinjiang, U.S. officials say.

"The world needs solar panels, you can't walk away from solar panels," Leduc said, adding that the fund wants to work with companies that are doing their best to understand their supply chains, rather than with those who are uninterested in changing.

In November, Tohti told the parliamentary committee that Quebec's pension fund manager has invested more than $2 billion in companies associated with the alleged Uyghur genocide or forced labour.

Hong Kong Watch, a United Kingdom-based non-governmental organization, says many Canadian pension fund managers are investing in index funds — a basket of various stocks of companies — that include firms linked to Uyghur forced labour or that have been involved in building internment camps for the oppressed minority. Those pension funds include Quebec's Caisse, the B.C. public sector fund and the Alberta Investment Management Corporation.

The Caisse has invested around two per cent of its $402-billion portfolio in China. The fund has developed "rigorous (environmental, social and governance) criteria for all our investments to avoid investing in companies whose practices violate principles such as respect for human rights," spokeswoman Kate Monfette said in an email, but didn't provide examples. She said a "small portion" its portfolio is constructed using indexes or managed externally.

Sam Goodman, the director of policy and advocacy at Hong Kong Watch, said corporate governance structures aren't the same between Canada and China, where the state plays a much bigger role in the economy.

"Under China's own national intelligence law and security laws, these companies, especially the technology companies, are compelled to work hand in glove with the Chinese state and they're not allowed to disclose to any organization or anybody outside of China the extent of that collaboration," he said in a recent interview.

That means companies like multimedia giant Tencent, primarily known for social media applications and video games, may be involved in repression.

"Tencent, as the owner of WeChat, has been accused by Human Rights Watch of building a backdoor into their software allowing authorities to identify and detain Uyghurs who share religious material," Goodman said.

The CPP Investment Board invested more than $1 billion in Tencent in 2016.

Leduc told the parliamentary committee that his fund is monitoring that investment "very, very closely to continue to understand the risks, including some broader human rights-related dimensions of that investment."

B.C.'s pension fund has invested in a company — through an index fund — sanctioned by the U.S. for developing an artificial intelligence system used recognize Uyghur people by their facial features. Daniel Garant, a senior vice-president at the fund, told the parliamentary committee that "it's engaging with index providers to improve what they put in the index."

The B.C. fund said in a statement that investments in indexes are necessary because they offer "flexibility and required liquidity as part of our diversified portfolio."

The Alberta Investment Management Corporation cancelled a recently scheduled appearance before the parliamentary committee and declined to comment, citing the province's ongoing election campaign.

This report by The Canadian Press was first published May 22, 2023.

Jacob Serebrin, The Canadian Press