Canada’s largest public pension manager has begun a new scrutiny of its investments, including its ownership stake in Chinese companies, as human-rights groups and U.S. lawmakers point to the role of China’s surveillance-equipment makers in enabling the monitoring and control of the country’s religious minorities.
The Canada Pension Plan Investment Board says it is conducting new checks across its vast portfolio to identify companies with troubling practices – even as it continues to pursue a strategy of diversification with investments in China.
“Companies that violate human rights aren’t positioned to succeed and have no place in any portfolio that exists to deliver risk adjusted returns over multiple generations. We are monitoring the practices of companies in this regard,” said Michel Leduc, global head of public affairs and communications at the CPPIB, in an e-mailed statement.
In particular, he said, “the potential misuse of advanced technology is a concern.“
Mr. Leduc was responding to questions from The Globe and Mail about the CPPIB’s ownership of Chinese surveillance equipment companies that U.S. legislators want to blacklist for enabling state violations of human rights.
All of this occurs as frictions between Canada and China have increased in recent months after the arrest of Chinese executive Meng Wanzhou in Vancouver, at the request of U.S. authorities, with China ostensibly retaliating by arresting two Canadians and blocking agricultural imports.
The CPPIB, along with British Columbia Investment Management Corp. and Caisse de dépôt et placement du Québec, has stakes in a pair of companies whose technology has been used in China’s Xinjiang region, where authorities have built a powerful apparatus for monitoring and controlling a large Muslim population of Uyghurs, Kazakhs and other ethnic minority groups. Authorities in Xinjiang have used surveillance technology to track and control people in a sweeping anti-extremism campaign that has also seen an estimated one million people placed in internment centres for political indoctrination and skills training.
Hangzhou Hikvision Digital Technology Co. Ltd. and Zhejiang Dahua Technology Co. Ltd. are major manufacturers of camera equipment that combines video surveillance with advanced computer technologies such as facial and gait recognition.
Human Rights Watch, in a report this year titled China’s Algorithms of Repression, identified Hikvision as the winner of a contract to supply China’s Integrated Joint Operations Platform, which undertakes mass surveillance in Xinjiang. Hikvision is partly owned by China Electronics Technology Group, a state-owned military contractor.
“Funds have to look into whether their investments are contributing to human-rights abuses,” said Maya Wang, the senior China researcher with the group and lead author of the report. “Surveillance companies like Hikvision are intertwined with the public-security apparatus in China, and there is understandably a lot of concern over their involvement not just in Xinjiang but in enabling authoritarian governments to commit human-rights abuses outside of China as well.”
Hikvision also operates three systems integration companies and a construction company in the town of Hotan in southwestern Xinjiang, according to its 2018 annual report.
“It reflects a vote of confidence if you’re investing in a company,” said Margaret McCuaig-Johnston, a senior fellow with the China Institute at the University of Alberta. For Canadian investors who own Chinese surveillance company stock, “it may be that these companies were not aware of how this technology was going to be used when they first invested in them. Perhaps it’s time that they took a second look.”
Yet selling off stock should be a last resort, said Paloma Munoz Quick, a program director with the Investor Alliance for Human Rights.
“Investors with holdings in Chinese companies involved in surveillance activities in Xinjiang should use their leverage to call on these companies to stop selling tools to the Chinese government that may be used to monitor and control the Muslim minority in the region,” she said.
The CPPIB, which has actively pursued additional investment in China, owns $46-million in shares in Hikvision and $2-million worth of Dahua, according to a statement on foreign publicly traded equity holdings dated March 31.
Both are among five companies that members of the U.S. Congress, citing human-rights concerns, have considered for inclusion on a list that would bar them from obtaining components from U.S. companies without special permission. The United States recently imposed similar requirements for Chinese telecommunications giant Huawei Technologies Co. Ltd. on security grounds.
Other major Canadian pension investors also have stakes in China’s surveillance industry.
Between 2017 and 2018, as reports began to emerge of arbitrary mass detentions of Uyghurs in Xinjiang, British Columbia Investment Management Corp. raised its public equity investments in Hikvision and other Shenzhen-listed Chinese companies supplying surveillance systems in the region.
According to its investment inventory, BCI held more than $20-million in Hikvision shares as of March 31, 2017.
One year later, BCI, which oversees $145.6-billion worth of assets, had raised its holdings in Hikvision to $37.9-million and committed a new investment of $4.2-million in Dahua.
Over the same period, it also raised its exposure to Beijing Venustech Group, a provider of network security services whose clients have included arms of the Chinese military, from $43.2-million to $62.2-million.
“After careful consideration, we respectfully decline the opportunity to discuss the details of our investment holdings,” BCI wrote in an unsigned e-mail from its communications account in response to questions from The Globe.
Caisse de dépôt et placement du Québec (CDPQ), an institutional investor that manages several public and parapublic pension plans and insurance programs, maintains a similar footprint.
As of the end of December, 2018, CDPQ held shares worth $60.1-million in Hikvision, $19.6-million in Dahua and $17.7-million in Beijing Venustech, according to its annual report.
CDPQ did not respond to a request for comment.
Other major Canadian pension funds do not list specific holdings. The Alberta Investment Management Corp. said it does not own shares in Hikvision or Dahua. The Ontario Municipal Employees’ Retirement System and the Ontario Teachers’ Pension Plan did not respond to requests for comment.
A number of private funds have also traded shares in the Chinese surveillance state. Investor documents show that CI Investments held $3.7-million in Hikvision via its emerging markets equity pool, while Calgary-based Mawer Investment Management had upwards of $50-million in Hikvision across its portfolio. “We no longer hold the company in any of our portfolios,” Mawer marketing manager Joanna Crozier said in an e-mail. “That company is not held in the emerging markets equity pool and is not held by any CI fund,” said Murray Oxby, vice-president of communications at CI Investments.
The CPPIB has made China a key part of its diversification strategy, with plans to open an office there as its holdings of companies in greater China reach almost 10 per cent of its $392-billion in assets.
That includes shares in other major Chinese companies that also do business in Xinjiang – builders, brewers, electrical utilities and rail manufacturers.
The CPPIB holds stocks in thousands of companies through a quantitative program designed to secure an overall risk and return profile, rather than through individual investment decisions, Mr. Leduc said.
“It is purely about extensive diversification across many sectors of the economy – and globally,” he said. Performing intensive background checks on each of those companies has been prohibitively expensive, but “we have sought, found and started to apply such tools earlier this year.”
Still, he said, CPPIB intends to continue investing in China.
“Global diversification is not a choice for CPPIB,” Mr. Leduc said. “Avoiding what will soon become the world’s largest economy (for us, ‘soon’ is the next decade, not the next quarter) would not be prudent and would not be consistent with our legislation.”
David Green is a freelance writer.