Australia's sovereign wealth fund screening for Chinese firms at risk of US bans

Australia's sovereign wealth fund, the Future Fund, is screening its portfolio for Chinese companies at risk of U.S. investment restrictions, its chairman said on Tuesday.

The Biden administration plans to ban investments in some Chinese technology firms and increase scrutiny of others, sources have said, as part of its plan to crack down on the billions that American firms have poured into sensitive Chinese sectors.

Peter Costello, chairman of the A$243 billion ($164 billion) fund and a former Treasurer, cited the experience of Western investments in Russia that were written to zero after waves of sanctions effectively shut foreign investors out of the country.

"Is it foreseeable that something similar could happen in China? I think it's foreseeable," Costello said during a panel discussion at the Australian Financial Review business summit in Sydney on Tuesday.

"And so we've gone through very, very carefully as many companies as we can to try and drop stocks. Have we found every company? No, because you don't know of a lot of these Chinese companies."

His remarks underscore the hesitancy of many large money managers who are choosing to steer clear of Chinese assets due to political risks - including tension over the war in Ukraine as well as over Taiwan - that have increasingly seen China and the West on opposing sides.

The U.S. in October placed sweeping restrictions on exports to China of American artificial intelligence (AI) chips, chipmaking tools and supercomputers among other technologies.

"What worries us is that as this decoupling goes on the U.S Commerce Department, the Bureau of Industry and Security is announcing various Chinese companies that you can't export high-tech equipment to."

Costello gave a hypothetical scenario where Chinese-made drones might be found in Ukraine and its manufacturers were hit with U.S. investment bans in response.

"I just think (this stance is) a prudent measure in this bifurcated world we're going into," he said.

Costello added, however, that it was important for the fund to maintain its exposure to emerging markets and China was a large part of that.

His comments also come at a time when Australia and China are seeking to mend fences after a years-long diplomatic freeze, with Australia asking China to remove unofficial "trade blockages" on its exports.

The Future Fund was established in 2006 to cover escalating pension liabilities for public servants and rivals Australia's largest pension funds in size.

A spokesperson for the fund declined to comment on its current China-related holdings. The fund has in the past cut its exposure to emerging markets, including China, he said without elaborating.

($1 = 1.4859 Australian dollars)