A Belgian lawmaker has accused investment funds of hypocrisy for investing in Chinese companies that do business with a state enterprise that has been sanctioned by the West for using forced labor.
In documents shared with POLITICO, Green MP and pro-democracy campaigner Samuel Cogolati accuses five financial institutions that manage money for Belgian investors of buying shares in Chinese companies that, he alleges, are complicit in the repression of the Uyghur minority through their ties with the Xinjiang Production and Construction Corps (XPCC).
XPCC is a state-owned economic and paramilitary organization ruling the western Chinese region of Xinjiang, where Beijing has launched a crackdown against the Uyghur community.
Also known as Bingtuan (“The Corps”), XPCC has been sanctioned by both the U.S. government and the EU for large-scale surveillance, detention and indoctrination of Uyghurs, a Muslim minority estimated to number nearly 11 million in Xinjiang. Researchers from Britain’s Sheffield University have described the enterprise as a “colonial institution, responsible for land expropriation.”
China’s harsh rule in Xinjiang has drawn increasing international scrutiny. A U.N. report in August found that “serious human rights violations” had been committed in Xinjiang under a crackdown that purportedly targets extremists, but in practice discriminates against Uyghurs and other Muslim minority groups.
Cogolati issued his call to divest after spending several months studying the financial reports of mutual funds marketed by four banks and one insurance company: KBC, BNP Paribas Fortis, its arm Fintro, NN, which markets funds managed by Pictet Group, and Nagelmackers, whose funds are run by London-based Schroders.
The last, Nagelmackers, is owned virtually outright by the Chinese Ministry of Finance through a series of holding companies.
“Belgian banks can no longer plead ignorance,” Cogolati said in an interview. “The Chinese companies in which they invest are blacklisted by the United States, or openly linked to the EU-sanctioned XPCC, or denounced as responsible for forced labor.”
Cogolati, who is co-head of the Inter-Parliamentary Alliance on China, an international caucus of lawmakers that advocates for democracy, was himself sanctioned by Beijing in 2021 after calling for the Belgian parliament to pass a resolution warning that the Uyghurs are at risk of genocide.
Public filings by these institutions show that they own shares in Chinese companies which have documented business links with The Corps.
Among them, Agricultural Bank of China (ABC), one of China’s biggest banks, appears as a holding of four of the fund groups. The bank has a large branch inside the XPCC and describes itself as “the only financial institution with a complete financial service system” in the region where The Corps operates.
The China Railway Construction Corporation (CRCC), according to British newspaper The Times, built a detention camp in Xinjiang, used for incarceration without trial, torture and forced labor. The company, which built the venue for the football World Cup final in Qatar, has also done work for XPCC and has been sanctioned by the U.S. government.
Four of the funds have also owned shares in Xinjiang Goldwind Science & Technology, China’s largest wind turbine maker. The company, a partner of tech giant Apple, has entered into talks to transfer workers as “labor exports” from Xinjiang, NGOs have reported. In December 2020, months after the U.S. sanctioned The Corps, Goldwind signed an agreement with XPCC to supply power to one of its settlements.
Cogolati, who is also vice-chair of the Belgian parliament’s foreign affairs committee, is calling out the banks for hypocrisy and failing to uphold their own environmental, social, governance and human rights guidelines.
Financial institutions should divest from companies “involved in massive human rights violations,” the lawmaker said in a research dossier.
In the 17-page document, Cogolati cites comments by the EU’s foreign policy chief, Josep Borrell, who has said that sanctions against XPCC should “consist of an asset freeze and a prohibition to make funds or economic resources available to the listed entity, directly or indirectly.”
He therefore calls for sanctions to be applied broadly — not just directly against XPCC but also against Chinese companies that do business with it.
“If a simple Google search allows us today to find very close links between the Chinese companies in which Belgian banks invest and the XPCC, one can question the effectiveness of European sanctions and the capacity of current surveillance systems to filter, or even block, the most problematic Chinese firms in terms of human rights,” Cogolati said.
And while the EU is attempting to clean up its supply chains from forced labor and human rights abuses under the upcoming due diligence rules, some EU countries, including France, led a mutiny last week to make the rules optional for the financial sector, making it very difficult to police their supply chains.
David and Goliath
Generally, the assets under scrutiny are small stakes in listed Chinese companies, typically stakes of 2 percent or less, with little or no strategic influence.
Still, the data provided shows that funds marketed by KBC, BNP Paribas Fortis, NN and Nagelmackers all own stakes in Xinjiang Goldwind Science & Technology.
Responding to a request for comment from POLITICO, a spokesperson for KBC said: “KBC regrets these events and stresses that it applies a strict exclusion policy for both conventional and Responsible Investing funds.”
The spokesperson added that “KBC confirms that these companies have not been excluded on the basis of our policies. However, based on the new information provided, KBC will analyze and monitor the cases as we often or always do when we receive new information.”
Based on an assessment by their advisory board, it is possible that the Chinese companies would be excluded from the KBC asset offers in the future, the spokesperson said in written comments.
Until June 2021, a couple of months after the XPCC was sanctioned by the EU, BNP Paribas Fortis was still invested in Xinjiang Goldwind and the Agricultural Bank of China, as shown by the 2021 annual report of their assets portfolios. However, the same report published a year later shows that those companies are no longer listed as assets.
“We do not currently have any holdings in the four companies mentioned within the ‘BNP Paribas Funds’ range,” a spokesperson for BNP said.
BNP, through an exchange-traded fund that tracks a China equity index compiled by MSCI, does invest in Xinjiang Goldwind. “This fund uses physical replication to track an index and we have no hold over the constituents of the index,” the BNP spokesperson said.
NN confirmed that it held stakes in Goldwind and Agricultural Bank of China and noted that these are not on a sanctions list. It added that it would “closely monitor the relevant information and further developments.”
Nagelmackers markets the Global Emerging Market Opportunities fund, run by British asset management company Schroders, which owned shares in Agricultural Bank of China until December 2021, according to Schroders’ annual report.
In response to POLITICO, a spokesperson for Nagelmackers said that it “has no direct or indirect exposure to the stocks concerned.”
“Neither Xinjiang Goldwind Science and Technology Company nor Agricultural Bank of China are on [the European and American] sanctions lists, nor are we directly invested in these stocks within our Nagelmackers house funds,” the spokesperson added.
Asked for comment, Schroders said: “We always comply with sanction regulations. As well as the regulatory and reputational risks modern slavery creates for companies, we also recognise that many of our clients expect us to go further than minimum standards of compliance.”
The Chinese mission to the EU, the Chinese embassy to Belgium, and Pictet did not respond to requests for comment.
Hannah Brenton contributed to this article.