Another Problem for Chinese Stocks: Activists Press Big Investors on Human Rights

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Need one more reason not to buy shares in

Alibaba Group Holding
,
despite their 50% implosion over the past year? Try accusations of aiding and abetting oppression of China’s Uighur minority.

Beijing has used the e-commerce giant’s Taobao marketplace to auction property confiscated from Uighur businesspeople in Xinjiang province, according to the Uighur Human Rights Project.

Alibaba (ticker: BABA) has tried to distance itself from Xinjiang. It said it “eliminated any ethnic tag” from face-recognition software after reports last year of its use there. The auction tie shows that any large Chinese firm is challenged to keep its hands clean, says John Metz, executive director of the Athenai Institute, a student-led group pressing U.S. university endowments to divest from “companies that are complicit in genocide” in Xinjiang.

“We should absolutely look on a case-by-case basis,” Metz says. “But every case we have looked at, we found some connection.”

Athenai, which hearkens back to the 1970s South Africa divestment campaign, isn’t the only one pressing institutional investors to cancel China. The Consumers’ Research nongovernment organization lately petitioned 10 U.S. governors to “be aware of the risks” of allocating pension money to

BlackRock

(BLK), as the management giant is “funneling billions in U.S. capital to China.” The group, which rails against “woke corporations,” is aligned with its woke arch-villain George Soros in decrying BlackRock’s China connections.

That’s not to mention the Securities and Exchange Commission, which this month published rules for delisting some 200 Chinese companies from U.S. exchanges if they don’t comply with accounting requirements within three years. “Awareness is growing around China issues that the investing world has not been paying much attention to,” says John Quealy, chief investment officer at socially oriented Trillium Asset Management.

Chinese stocks already lag behind on environmental, social, and governance, or ESG, metrics. Just a quarter of Chinese companies put “growing emphasis on implementing ESG policies,” compared with 45% globally, a recent Fidelity International survey found. Complex ownership, state involvement, and poor communications are common complaints. “Some companies want to engage; others absolutely do not,” Quealy says.

Systemic boycotts of Chinese securities remain unlikely. The country is long on companies that ESG investors should love, particularly in renewable energy and electric vehicles.

Bad peer behavior hands an advantage to issuers who do take governance seriously, says Tony Tursich, portfolio co-manager of sustainable equity strategies at Calamos Investments. One example is EV maker

BYD

(1211.Hong Kong), which makes the top quartile in Institutional Shareholder Services’ global governance rankings. Its shares are up 44% this year.

China, the global growth engine with thousands of stocks on offer, dwarfs apartheid South Africa in market significance. Capitalists will hurry back if Beijing curbs its own disruptive “reforms” next year, and the

iShares MSCI China
exchange-traded fund (MCHI) starts bouncing back from an 18% loss in 2021, says Nicholas Borst, director of China research at Seafarer Capital Partners. “There are a lot of soft pressure campaigns targeting Chinese investments, but the data don’t show investors reacting yet,” he says.

That’s what market wisdom would have said in 1977, when Hampshire College became the first school to shed South African investments, says Athenai’s Metz. More than 150 U.S. campuses soon followed suit. Athenai got its first commitment to “audit” Chinese exposure this year from The Catholic University of America.

Watch this space.