For decades, the Chinese Communist Party (CCP) has used the U.S. stock market to raise money for companies that support its authoritarian regime. These firms often operate with little transparency and no accountability, leaving American investors vulnerable to fraud and financial loss while jeopardizing U.S. national security.
Chinese President Xi Jinping openly admitted that Beijing is plowing full steam ahead on this strategy in an August article in Qiushi, the CCP’s theoretical journal. Xi doubled down on the idea that China is pursuing a “socialist market economy” and reaffirmed that “[these principles] cannot and will not change.”
Of course, the idea of a “socialist market economy” is itself a contradiction in terms. A market economy cannot function under the centralized, opaque control of a one-party state. Xi has long recognized that the mere appearance of a free market in China is enough to gain access to global capital while still rejecting the core institutions that make market economies trustworthy.
That contradiction is most evident in the way Chinese companies are permitted to raise billions of dollars on U.S. exchanges despite refusing to meet basic financial disclosure standards. The risks here are clear. In 2019, Chinese coffee giant Luckin Coffee admitted to fabricating hundreds of millions of dollars in sales, costing investors dearly and leading to a delisting from the Nasdaq. In a separate scandal, Kangmei Pharmaceutical—listed on MSCI indexes—reported a $6.1 billion loss after misleading investors and yet faced no delisting in China.
Professor Wu Hîn, who supervised legal and political affairs at the CCP Central Committee in the 1980s before defecting to the West, offers critical historical context for how Beijing views the U.S. stock market. “Wondering how to survive, CCP officials invented the phrase ‘market with Chinese characteristics’ to gain access to Western capital” he explained.
“Nobody really knew what it meant, but to their surprise, the West took it seriously.” Wu said this allowed the CCP to maintain its grip on the economy while appearing to shift toward a free-market system. “It was the CCP’s way of using capitalist systems to cement its own power while preserving control of the economy – as Lenin taught.”
Meanwhile, Wall Street has largely ignored the warning signs of increasing Chinese presence in the U.S. stock market. By including Chinese firms in passively managed index funds, financial institutions have helped Beijing raise money while shielding those companies from investor scrutiny.
These index funds are often marketed to ordinary Americans saving for retirement, many of whom are unaware that their money is being funneled to companies that serve the interests of the CCP.
In April, the House Select Committee on the Chinese Communist Party released a report detailing the extent of this problem. It found that 63 Chinese companies or subsidiaries involved in developing military hardware, facial recognition systems, and nuclear capabilities received $6.5 billion in U.S. investor capital through 152 asset managers, 526 funds, and 37 different indexes.
That figure is just the tip of the iceberg. According to Future Union, an organization with the goal of “galvanizing the private sector to stand with democracy,” between 2018 and 2022, American universities invested $146.1 billion in Chinese securities through their endowments. In 2023 alone, 29 of the 74 largest U.S. pension funds had $68 billion invested in Chinese firms. These investments extended into sensitive areas such as quantum computing, biotech, and artificial intelligence.
Much of this is made possible by so-called “faux shares” – shell company listings in places like the Cayman Islands that serve as proxies for actual Chinese corporations. Christopher O’Leary, Chairman and CEO of O’Leary Ventures, explained during congressional testimony that Wall Street firms often “replace the actual shares of Chinese companies for shares of a shell company,” giving the illusion of transparency while hiding the reality of CCP control.
This structure makes American investors especially vulnerable. If the U.S. imposes sanctions on China over human rights violations or an invasion of Taiwan, the CCP could retaliate by freezing American capital or blocking the repatriation of corporate earnings. In either scenario, U.S. investors could lose billions.
The threat is compounded by China’s use of the “golden share” rule, introduced in 2013, which allows the government to outvote all other shareholders in any non-public company. While most media focus has been on tech giants like Alibaba, this control mechanism applies much more broadly.
In other words, the growth of the “private market” in China that Xi Jinping touts is an illusion – companies are only independent of CCP control so long as they don’t do anything that the CCP doesn’t approve of.
Christopher Iacovella, CEO of the American Securities Association, told Congress that loopholes allowing Chinese companies to take advantage of U.S. markets “amount to an unjust system” that discriminates against American firms while putting U.S. investors at risk. “This legal gap allows index funds to channel billions of American investor dollars into opaque Chinese companies,” he said.
Congress is beginning to respond. Last year, Reps. Victoria Spartz (R-IN) and Brad Sherman (D-CA) introduced several bills aimed at closing the loopholes. The No China in Index Funds Act would prohibit the inclusion of Chinese firms in passive investment vehicles unless they meet full transparency and regulatory standards, while the China Risk Reporting Act would require U.S. firms and investment managers to disclose their exposure to Chinese entities in annual reports, giving investors more visibility.
These reforms couldn’t be more urgent. At a time when Americans are increasingly aware of the risks posed by China’s economic strategy, they deserve to know whether their retirement accounts are being used to bankroll companies that are hostile to U.S. interests. The federal government has a responsibility to ensure that Wall Street can no longer act as an unregulated bridge between American capital and authoritarian regimes.
Ben Solis is the pen name of an international affairs journalist, historian, and researcher.
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