China’s burgeoning economy has long made it popular with foreign investors, including pension funds. At the end of 2020 two funds, ABP and Pensioenfonds Zorg & Welzijn, had over €31 billion invested in China. But reports of serious human rights abuses in Xinjiang province have posed a dilemma: should the funds focus on their profits, or their reputations? FTM investigated what the Netherlands’ 24 biggest funds are doing in China.
- There are about two hundred pension funds in the Netherlands, with total invested assets of nearly €1.7 trillion. The 24 biggest funds together account for around 80 percent of this amount. Each has at least €10 billion invested, and they have more than 13 million members between them.
- Funds may invest actively in stocks or bonds, or passively, for example in index funds. They can also put their money into private equity.
- Over the past weeks, Follow the Money has investigated the 24 biggest funds’ Chinese holdings. ABP and Pensioenfonds Zorg & Welzijn had over €31 billion invested in China at the end of 2020.
- The total amount in Chinese holdings of these 24 funds are unclear: many do not publish this information.
‘China is a hugely attractive market: with the Chinese middle class expanding rapidly, companies are increasingly profiting from the internal market. In a few years’ time, its economy will be bigger than America’s. If you want to make money by investing in China, weill tell you the best way to buy Chinese stocks.’
So begins an article on investment website mijnbroker.nl. But despite this upbeat introduction, it paints a very mixed picture of what China has to offer. The economy grew even during the pandemic, and appears to be a paradise for investors, but the financial risks are huge.
Mijnbroker.nl cautions readers that China has limited transparency and regulation, which is why ‘financial results as published by companies don’t necessarily reflect reality’. Fraud and corruption are rampant, the government is less than stable, the trade war with the United States could turn out badly for China, and government debt has grown to more than 50 percent this year.
The country’s reputation has plunged even more, due to the persecution of democracy advocates in Hong Kong
The website neglects to mention that China is a dictatorship that muzzles its media, practises strict censorship, and persecutes minorities, dissidents, and human rights activists. Freedom House, an ngo campaigning worldwide for democracy and human rights, has labelled China as one of the world’s least free countries, with a tightly controlled internet. And an overview by Amnesty International describes the human rights situation as abysmal.
In recent years, the country’s reputation has plunged even more, due to the persecution of democracy advocates in Hong Kong and the oppression of Uyghurs and other minorities.
Most Dutch pension funds aren’t discouraged by this. At the end of 2020 the biggest of them all, ABP, had nearly €25 billion invested in China. And we don’t know what these Dutch funds’ total investments amount to; not all of them disclose this information.
There are about 200 pension funds in the Netherlands; their total invested assets amount to nearly €1.7 trillion. The biggest funds, each with holdings of at least €10 billion, account for around 80 percent of this, and represent more than 13 million members.
These investments may be active (in stocks or bonds) or passive, for example in index funds. The funds may also invest in private equity.
Over the past weeks, Follow the Money has investigated the Chinese investments of the Netherlands’ 24 biggest pension funds. How much do they invest, and in which companies? And are these holdings compatible with agreements on corporate social responsibility?
Investments in companies involved in the repression of Uyghurs
The northwestern province of Xinjiang is home to several ethnic minorities, including Uyghurs, Kazakhs, Kyrgyz, and Mongols. They have been fighting Chinese dominance and discrimination for decades.
In 2014, China launched what it called ‘The People’s War on Terror’ in Xinjiang. It established a substantial police presence, began massive surveillance, including the use of facial recognition. In 2017 China started building detention camps, mainly for Uyghurs. For a long time it denied their existence, but when satellite pictures came to light it dubbed them ‘reeducation camps’. In September 2019, drone images of prisoners being transported left little to the imagination: they showed blindfolded, shaven-headed Uyghurs being herded onto trains.
Human rights organisations and the UN estimate the number of detainees in these centres at between 1 and 1.5 million.
Although China insists that the Xinjiang reeducation camps do not use forced labour, reports and research show otherwise. In May 2021, the UK Sheffield Hallam University published a report, based on Chinese government documents, concluding that solar panel manufacture is largely based on Uyghur forced labour. And FTM reported in December 2020 that many Chinese facemasks were made in the same way.
18 Dutch pension funds have invested €349 million in 15 companies linked directly to the oppression of Uyghurs
In 2012, the state security ministry began building a national database for voice patterns. Four years later, police stations in Xinjiang province, where many Uyghurs live, set up similar systems. The voice patterns were used, among other things, to determine whether Uyghurs participated in bugged phone conversations.
In October 2017, Human Rights Watch reported that the government was installing the controversial databases in cooperation with iFlytek, which makes 80 percent of China’s speech recognition technology. It also reported that iFlytek itself had mentioned its relationship with the security ministry, and that the company is a key player in the Golden Shield Project, a huge government surveillance programme meant to keep tabs on the citizenry.
iFlytek’s role in spying on Uyghurs and others didn’t stop six Dutch pension funds from investing in it. The amounts involved are not big, totalling around a million euros.
The exultant press release failed to mention that Hikvision monitors not only footballers, but Uyghurs as well
In June 2017, Dutch football club Ajax proudly announced a deal with its fifth Asian sponsor: the Chinese company Hikvision, which, according to the club’s website, ‘operates in the area of cameras and innovation systems’. In a press release, Hikvision said it would build the cameras for Ajax to ‘closely monitor the players as they crisscross the field.’
What the exultant press release failed to mention, was that Hikvision monitors not only footballers, but Uyghurs as well. Reuters describes the company as a ‘surveillance powerhouse’. In 2016 and 2017, before the agreement with Ajax, the company signed contracts with Xinjiang police to supply surveillance and facial recognition systems for mosques. In October 2019 the US government blacklisted the company for its involvement in human rights abuses. A year later, and for the same reason, a Danish pension fund disinvested from Hikvision.
In mid 2020, Dutch pension funds PME and PMT were still invested in Hikvision according to their last published reports, together holding over €4 million. Both have since sold their stakes, as has Pensioenfonds Hoogovens, which still had just over €100,000 in Hikvision at the end of 2020. Rabobank Pensioenfonds had nearly €285,000 invested in the company at the end of 2020; we can’t say whether this is still the case, because it told us it doesn’t issue updates during the year.
Dutch pension funds have invested at least €37 million in China Unicorn and its subsidiaries
State-owned company China Unicorn has been helping the authorities in Xinjiang since 2018. It develops surveillance technology, among other things, and staff members visit and check Uyghurs at home at weekends, according to information from the Australian research institute ASPI. The latest published figures show that Dutch pension funds have invested at least €37 million in China Unicorn and its subsidiaries.
We asked the 18 funds shown in the graphic to respond. PMT and PME said they had disinvested from all controversial companies. ABP, BpfBouw and SPW have since withdrawn from three of the four. Pensioenfonds Detailhandel still invests in two controversial compqanies. The other funds either confirmed that they are still invested in these companies, or did not reply to our questions. PFZW still has stakes in nine controversial Chinese companies.
Investments in tech companies
Tech giants are part of the world’s fastest-growing and most profitable sectors, which is why Dutch pension funds have large amounts invested in them. In 2020, the five biggest funds had over €8 billion in Facebook and Amazon, which for years have regularly made headlines for privacy violations, unfair competition, distribution of fake news, abuse of power, and dire working conditions.
‘Tech companies have long been regarded as clean: no coal, no pollution, just innovation,’ says Melanie Peters, director of the Dutch Rathenau Instituut, which researches the social implications of technology. ‘In Europe, we’re only just getting to grips with the downsides of Big Tech. Pension funds don’t yet have that awareness, and they don’t fully understand that technology can have major human rights implications.’
What Facebook, Amazon and Google are to the rest of the world, Baidu, Alibaba and Tencent – abbreviated to BAT – are for China. They, too, are tech giants with countless subsidiaries and activities.
Authorities were given access to Alibaba’s cloud technology for policing and antiterrorism purposes.
But Jonathan Holslag, a lecturer in international politics at the Free University of Brussels and author of The Silk Road Trap, sees a fundamental difference between the Chinese and American giants. ‘Both Alibaba and Amazon make their living from overcapacity in Chinese factories to get stuff as cheaply as possible to customers in the west. But Amazon isn’t inherently required to maintain a party or state or support a particular American president. It’s different for Alibaba. With American tech giants, the link with the government and politics is much less evident.’
Tencent is best known as the parent company of WeChat, an app used by nearly all Chinese people, including those outside China. It lets them send messages, book restaurants, and make payments. The app is heavily censored: even messages from users outside China are read by the censor, as Canadian research institute the Citizen Lab revealed.
Like Tencent, e-commerce company Alibaba is involved in the surveillance of minorities in Xinjiang. Its head, Jack Ma, signed a strategic partnership with the provincial government in 2014. Part of the deal was to give the authorities access to Alibaba’s cloud technology for policing and antiterrorism purposes.
Baidu, the owner of China’s biggest search engine and of iQTI, which is similar to YouTube, is also involved in oppression and censorship. In 2019, Human Rights Watch reported that it not only censors search terms such as ‘Xinjiang’ and ‘prison camps’, but also provides technology for a government platform that coordinates all action against minorities.
All 24 funds have major investments in BAT
The close ties between the BAT companies and the Chinese government, and their involvement in the oppression of Uyghurs, are not an issue for the Dutch pension funds we looked into. In 2020, they had at least €8.2 billion invested in these tech giants.
Of this, nearly €5 billion came from ABP, which civil servants are required to join. This is particularly ironic for employees of the Dutch data protection authority and the Dutch media authority. They work for organisations that protect privacy, and media independence and diversity, but their pensions are invested in companies that invade citizens’ privacy and aid censorship and the suppression of free speech.
Investments in the Chinese government, and in state-owned companies
Dutch pension funds are eager to invest in the Chinese government. ABP and PFZW, the two biggest, together own over €1 billion in government bonds, and smaller funds invest heavily in provincial and local governments.
The latter is an odd notion: how can you own shares in Chinese municipalities and provinces? Enquiries with the funds reveal that these are investments in companies owned by a municipality or province.
Pension funds’ investments in the state: over €2.6 billion
State-owned companies are also popular with funds. The term might elicit confusion: the Netherlands has state-owned companies too, but the relationship is different. For example, Holland Casino is wholly owned by the Dutch government, but the secretary of state for finance is not involved in its day-to-day management.
That’s different in China: the boundaries between the government and such companies are blurred. ‘State companies are largely run by party officials,’ Holslag says. ‘These report to a party committee, which makes sure the company is toeing the line. Each year, the companies have to explain how they’re helping to strengthen the position of the communist party, and contributing to the country’s welfare.’
‘There’s a big tension between maximising returns on the one hand, and the social engagement they all boast about on the other’
Holslag says it’s obvious why funds invest in Chinese state companies. ‘You just know what they’ll say: their job is to get the maximum return on their members’ money. Based on that principle, and because China has been growing for a long time, even during the pandemic, the country is almost unavoidable for investment funds.’
He continues: ‘That’s the defensive answer, but Dutch funds have taken on a social role. There’s a big tension between maximising returns on the one hand, and the social engagement they all boast about on the other.’
Pension funds’ investments in state companies: almost €2 billion
This realisation is slowly trickling through to the pensions industry. In response to questions from Follow the Money, PMT said that it developed a new strategy in 2018 and 2019 for stocks in emerging markets. The new strategy was implemented last summer. ‘PMT will no longer invest in companies owned by governments that are undemocratic or regarded as corrupt. Based on this, we no longer invest in Chinese state companies.’ The fund has also stopped putting money into Chinese companies in which the government has a stake of 10 percent or more.
PME, too, told us it no longer invests in Chinese state-owned companies, governments, or government bonds. It cited China’s decline on the Economist Intelligence Unit’s Democracy Index, partly as a result of increasing discrimination against muslim minorities and digital monitoring of citizens. BPL Pensioen, the agricultural and green sector fund, has stopped investing in Chinese governments and government-owned companies
Investments in Chinese banks
‘The world’s first robot bank opened in Shanghai in mid-2018. The China Construction Bank offers a glimpse of the industry’s future. Inside the building, all you’ll see is robots carrying out simple transactions in an environment of advanced facial recognition and security hardware.’
This outpouring of enthusiasm comes from Nout Wellink, a former president of the Dutch Central Bank, in his book Ontgelden (Demonetisation). Several years ago he became a non-executive director, first at the Bank of China and then at the Industrial and Commercial Bank of China. In both, he saw offices ‘with the latest hardware, compared to which many of our bank branches are just dull customer reception centres.’
As a former bank regulator, Wellink recognises that surveillance technology presents serious risks, but says: ‘You can’t put the facial recognition genie back in the bottle.’
Wellink is not the only one to wax lyrical about Chinese banks. Dutch pension funds gladly invest in them, even though, as Holslag says, ‘The most important person in a company like the China Development Bank is not the CEO or chairperson, but the party commissar.’
Investments in Chinese (state) banks
The China Development Bank is one of the leading providers of project finance to poor countries. ‘This credit is often handed over with far less due diligence and far fewer governance requirements than western banks do,’ Holslag writes in The Silk Road Trap. ‘This means small countries can get hooked on debt, and governments become so dependent on Chinese finance that they can’t provide key infrastructure and services without it.’ Examples include Cambodia, Laos, Tadzhikistan, Mongolia, and but also European countries such as Greece and Montenegro.
Seven of the 24 pension funds we investigated had investments in the China Development Bank, totalling at least €350 million.
In May 2020, Follow the Money revealed that mobility multinational Keolis had won the contract for a Dutch public transport concession by dubious means. It agreed to buy electric buses from Chinese manufacturer BYD, and got them cheaper by promising not to charge penalties or sue the company if they were not delivered on time.
A Dutch bus manufacturer, VDL Group, failed to win the contract. Owner Wim van der Leegte and his son Willem complained in Het Financieele Dagblad that there was no level playing field. BYD could supply cheap buses because it received Chinese government subsidies, whereas import duties made it almost impossible for VDL to win orders in China. Willem van der Leegte: ‘How come we have to pay 25 percent when we export to China, and if it’s the other way around, it’s less?’
The pension funds of VDL employees have invested €9.2 million in BYD, VDL’s Chinese competitor
In a further irony, VDL Group employees are required to hold their pensions with PME or PMT. In mid 2020, the two funds had a total of €9.2 million invested in BYD, VDL’s bitter rival.
This was the first time that a Chinese company in the Netherlands got into disrepute for being involved in fraud. In Asia, Africa and Latin America, Chinese companies frequently make headlines for bribery. And the World Bank regularly imposes temporary sanctions on Chinese entities for having engaged in fraud, corruption, or human rights abuses.
Holslag says that western companies, too, are often found guilty of bribery and corruption, but Chinese companies are the worst offenders: ‘The Chinese are worse than Europe in every single corruption ranking.’
But he says there are other factors at play. Western companies are increasingly having to contend with laws designed to prevent bribery, corruption, and human rights abuses. ‘When Chinese companies play fast and loose with the rules of good governance and human rights, this feels unfair to western companies. The more we bolster state capitalism by putting pension-fund money into China, the harder it will be for western businesses to compete. We’ll end up saying that human rights and good governance are all very well, but that there’s absolutely no place for them in the world of business.’
In 2007, the Dutch TV programme Zembla revealed that pension funds were massively invested in cluster bombs, weaponry, and in polluting factories. The programme sparked angry calls for regulation, and since 1 January 2013 it has been illegal to invest in cluster-bomb manufacturers.
Pension funds are further expected to comply with OECD guidelines, and with the UN Guiding Principles on Business and Human Rights. These specify how companies doing business abroad, including pension funds, should deal with issues such as human rights, working conditions, corruption, and the environment. ‘They’re guidelines: voluntary, but not completely optional,’ says Melanie Peters of the Rathenau Instituut. ‘Companies need to heed the guidelines themselves; you can’t police them all.’
Of the 24 pension funds that we investigated, 21 had signed the Pension Federation’s covenant on socially responsible international investment. So you might think their policies are largely the same – but no. One fund may ‘blacklist’ a company, another may invest in it without thinking twice.
Which pension funds invest in which type of ‘wrong’ Chinese companies?
For example, PME has blacklisted Avichina Industry for being involved in the manufacture of conventional weapons. But PFWZ still had €1.8 million invested in the company as of 31 December 2020.
China Shipbuilding is barred by eight funds for its involvement in nuclear weapons production. PMT and PME had respectively just over €177,000 and just over €142,000 invested in it at the end of June 2020, though they have now disposed of these investments. Pensioenfonds Detailhandel had invested nearly €137,000 and Pensioenfonds Hoogovens €27,000 at the end of 2020, while PGB had invested just over €162,000 in China Shipbuilding on 31 March 2021.
Engagement: starting a dialogue
Pension funds often say they ‘engage’ in dialogue with dubious companies they invest in, trying to stop them polluting rivers or breaching human rights. But Holslag is cynical. ‘Good luck with that. They have very small positions in Chinese companies anyway, so the influence of foreign investors is completely diluted, which of course is exactly what the Chinese want. I’d have absolutely no illusions about that.’
Peters says it’s the funds’ job to evaluate the likelihood of their engagement being a success. ‘If you don’t expect your partner to show any interest, you need to take responsibility yourself. You need to say: I can’t rely on this. I can’t ascertain what’s happening over there, so I’m out.’
‘In general, they’re not very responsive to engagement processes’
When FTM asked funds about their experience of engagement with Chinese companies, some said either that there had not been any, or that it was strenuous. KPN said: ‘Generally speaking, our experience with Chinese companies is that they’re not very responsive to engagement processes.’ PMT encountered one recalcitrant company, and concluded: ‘It wasn’t open to serious dialogue with investors, and for that reason we put it on our exclusion list.’
The Philips pension fund had a positive experience. In 2016, it invested in a Chinese mining company that was implicated in large-scale pollution. The fund’s spokesperson: ‘The engagement project [..] helped the company to remedy the violation and restore the natural environment.’
No longer optional
Corporate social responsibility and engagement are important, but they’re not compulsory. Nicola Jägers, a professor of business and human rights at the University of Tilburg, warns that optional guidelines are becoming a thing of the past.
She cites a statement by the OECD national contact point in the Netherlands. ‘People can submit complaints there if multinationals don’t comply with OECD guidelines. The contact point can act as an intermediary, and if this is not successful, its findings are published and the company is named and shamed. Companies don’t like that.’
Increasing numbers of countries are adopting laws requiring companies to comply with rules concerning people and the environment
Jägers also says increasing numbers of countries are adopting laws requiring companies to comply with rules concerning people and the environment. In the United States, for example, the Foreign Corrupt Practices Act bans companies operating in the US from bribing foreign officials.
‘France and the United Kingdom have also passed such laws. In the Netherlands, ChristenUnie member of parliament Joël Voordewind tabled a bill on companies and human rights. It’s great that companies say on their websites that they invest sustainably and do business in a socially responsible way, but we’re moving towards a legal obligation to put your money where your mouth is.’
We used investment data published on pension funds’ websites, and asked them for additional summaries. Most of the information dates from 31 December 2020.
Not all funds publish full summaries, including the names of the companies / entities they invest in, and the actual amounts invested. The following funds have a policy of publishing only the names of companies / entities in which investments are made:
- ABN AMRO Pensioenfonds
- Stichting Shell Pensioenfonds
- Pensioenfonds Rail & OV *
- Philips Pensioenfonds
- Pensioenfonds Vervoer
- BPL Pensioen *
- Pensioenfonds voor Huisartsen*
- Pensioenfonds KPN*
- Algemeen Pensioenfonds KLM
- Pensioenfonds Vliegend Personeel KLM
The following publish partial lists:
- Stichting Shell Pensioenfonds (top 25)
- Pensioenfonds PGB (top 50) *
The following do not publish investment summaries on their websites:
- Pensioenfonds Medisch specialisten
- Pensioenfonds Hoogovens *
- Pensioenfonds PostNL *
All funds marked with an asterisk (*) provided us with full summaries, including company/entity names and invested amounts. The Fonds Medisch Specialisten did not provide us with one, but invited us to inspect their investment portfolio at their offices.