Chinese conglomerate and real estate developer Evergrande filed for bankruptcy protection in New York on Aug. 17. It owes bond investors $28.1 billion, including American bond investors. Losses are guaranteed.

Wall Street used to love China. It was on the cusp of rivaling (and some say one day surpassing) the securities market in the United States. Everyone is there.

Goldman Sachs is set up there now. BlackRock is there. JP Morgan is there. They all have offices in China, serving the locals after decades of taking U.S. capital and happily deploying it into Chinese stocks and bonds by the hundreds of billions of dollars. With these powerful banks set up in town, Chinese customers get sexy Western brand names as asset managers, and Beijing gets free lobbying against financial restrictions.

Silicon Valley big boys like GSR Ventures are also there. Private equity giants like KKR from New York have enough money in China to sink a battleship. Their risks are rising, too.

Capitol Hill is cranking up the rhetoric against U.S. investments in China. If legislative trends continue, investors will be forced to sell dozens of China stocks placed on a “blacklist” of companies deemed bad dudes by the Commerce Department and Homeland Security.

Both parties want to cut China from U.S. investment portfolios.

Sen. Jeanne Shaheen, D-New Hampshire, has been at this since 2021. She re-introduced legislation this summer to ban federal government employees from including China in their retirement plans.

“Billions of dollars from the retirement accounts of federal government employees, like our military, are currently invested in China and prop up companies that threaten American interests and values. That’s unacceptable,” she said.

In the House, Mike Gallagher, R-Wisconsin, who runs the House Select Committee on the Chinese Communist Party, a new committee created this year to highlight the China risk, went after BlackRock on Aug. 1 in a letter inquiring about its China investments. BlackRock, like Vanguard and State Street, invests in anything with a ticker symbol unless told not to by their investors or lawmakers.

Gallagher and Sen. Josh Hawley, R-Missouri, re-introduced another bill in August that, if passed, would force public pension funds, college endowments and big non-governmental organizations to sell their China holdings or lose tax-emption.

Wall Street was forced to sell dozens of Chinese defense contractors publicly traded in Shanghai, Shenzhen and Hong Kong in 2021. They had one year to dump them, and they did.

Since then, no other companies have been banned from investments. However, both Homeland and Commerce have their naughty lists of Chinese companies. To do business with companies on these so-called Entity Lists, American companies need government permission to export or import goods from them. Investors, however, can buy their shares.

Hoshine Silicon Industries has been alleged by Homeland to use forced labor and prison labor. Its stocks are traded in China. Vanguard and BlackRock own them. You can’t import solar panels made from Hoshine materials, but you can give Hoshine a couple of billion dollars of American investment capital. That makes sense.

Homeland added Chenguang Biotech Group Co. to its Entity List in mid-August. Can’t import their seemingly benign-looking essential oils because Homeland says it uses forced labor. Fund manager USAA puts the money of their target customer — military members — into Chenguang. It’s harder to buy Chenguang mint oils, but not harder to buy their stocks.

Congress should consider whether Wall Street should be funding companies on these two lists. If Commerce and Homeland said these are bad companies, why is American capital going there via mutual funds and exchange-traded funds? Americans have no idea they are invested in these companies.

Silicon Valley knows, though. They are invested in Entity List names, too.

Chinese drone company DJI is on the Commerce naughty list. You can even buy their retail drones on Amazon for a Christmas present. They’re not publicly traded, but venture capital firms are invested. Sequoia Capital China owns DJI. They share their investments with Sequoia in Silicon Valley, though these two have broken up recently, likely due to rising political risk.

If Democrats and Republicans want to make investing harder in China because they believe we are funding a dangerous rival at risk to our national security and economic security, then adding Entity List names to capital market sanctions like defense contractors is the likely next target.

Back to Evergrande, if Washington is serious about restricting Wall Street and warning about rising risks, it should also let them feel the pain when their investments go to zero. Treasury should not bail them out of any China disasters. They’ve been warned. Who wants to remind them again?

Kenneth Rapoza is a senior contributor covering China for Forbes since 2011. He wrote this for InsideSources.com.

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