Australia’s wealth fund screens Chinese firms at risk of US bans

Australia’s sovereign wealth fund Future Fund is checking its portfolio for Chinese companies threatened by US investment restrictions, its chairman said.

The Biden administration plans to ban investment in some Chinese tech firms and tighten control over others as part of its plan to crack down on the billions that U.S. firms have invested in China’s sensitive sectors, the sources said.

Peter Costello, chairman of the AU$243 billion ($164 billion) fund and former treasurer, cited the experience of Western investment in Russia, which was wiped out after a wave of sanctions effectively closed the country to foreign investors.

“Is it foreseeable that something similar could happen in China? I think it’s predictable,” Costello said during a panel discussion at the Australian Financial Review Business Summit in Sydney on Tuesday.

“So we really, really scrutinized as many companies as possible, trying to get rid of the stock. We found every company? No, because you don’t know many of these Chinese companies.”

His remarks underline the indecisiveness of many big money managers, who prefer to stay away from Chinese assets due to political risks, including tensions over the war in Ukraine, as well as over Taiwan, who increasingly see China and the West on opposing sides.

In October, the United States imposed sweeping restrictions on exports to China of U.S. artificial intelligence (AI) chips, chip-making tools and supercomputers, among other technologies.

“What worries us is that as this separation continues, the US Department of Commerce, Bureau of Industry and Security are announcing various Chinese companies to which you cannot export high-tech equipment.”

Costello cited a hypothetical scenario in which Chinese-made drones could be found in Ukraine, and their manufacturers would face a US investment ban in response.

“I just think [this stance is] a prudent measure in this divided world we are entering,” he said.

Costello added, however, that it is important for the fund to maintain its presence in emerging markets, and China plays a big role in this.

His comments also come as Australia and China are trying to mend relations after years of diplomatic freeze, with Australia asking China to lift unofficial “trade blocks” on its exports.

The Future Fund was created in 2006 to meet the growing pension obligations of government employees and competes in size with Australia’s largest pension funds.

A spokesman for the fund declined to comment on its current China-related holdings. In the past, the fund has reduced its presence in emerging markets, including China, he said without elaborating.