Chinese Company Linked to Hypersonic Test is Present in Major Investment Indexes

In the after­math of reports last week that Chi­na suc­cess­ful­ly test­ed a hyper­son­ic mis­sile, scruti­ny of the Chi­nese mil­i­tary con­trac­tors report­ed­ly involved in that system’s devel­op­ment shows that at least one of these com­pa­nies, Tian­jin Phytium Infor­ma­tion Tech­nol­o­gy (Phytium Tech­nol­o­gy), is 31.5% owned by anoth­er enti­ty, Chi­na Great­wall Tech­nol­o­gy Co. (Chi­na Great­wall), that is pub­licly-trad­ed and includ­ed in many of the world’s largest invest­ment index­es.  These include, for exam­ple, MSCI ACWI, MSCI EM, FTSE Emerg­ing Mar­kets and FTSE All-World ex-US, which are tracked by tril­lions of dol­lars of assets under man­age­ment glob­al­ly.  The 31.5% stake of Chi­na Great­wall report­ed­ly makes it the largest share­hold­er of Phytium Tech­nol­o­gy.

In addi­tion to being pub­licly-trad­ed, Chi­na Great­wall is also a sub­sidiary of Chi­na Elec­tron­ics Corp. (CEC), a spe­cial weapons con­trac­tor for the People’s Lib­er­a­tion Army (PLA) that was des­ig­nat­ed as a Non-SDN Chi­nese Mil­i­tary Indus­tri­al Com­pa­ny (NS-CMIC) under Exec­u­tive Order 14032 issued by Pres­i­dent Biden in June 2021.  While U.S. per­sons are pro­hib­it­ed from invest­ing in com­pa­nies list­ed as NS-CMICs, this pro­hi­bi­tion does not apply to sub­sidiaries that are not also explic­it­ly des­ig­nat­ed by the Trea­sury Department’s Office of For­eign Assets Con­trol.

Phytium Tech­nol­o­gy was, how­ev­er, added to the Enti­ty List by the Biden Admin­is­tra­tion in April 2021 (along with six oth­er Chi­nese com­pa­nies).  The Enti­ty List impos­es export con­trols that are man­aged by the Bureau of Indus­try and Secu­ri­ty at the Depart­ment of Com­merce.  The addi­tion was attrib­uted to “con­duct­ing activ­i­ties that are con­trary to the nation­al secu­ri­ty or for­eign pol­i­cy inter­ests of the Unit­ed States.”

In mak­ing these addi­tions, U.S. Sec­re­tary of Com­merce Gina Rai­mon­do also not­ed, “Super­com­put­ing capa­bil­i­ties are vital for the devel­op­ment of many – per­haps almost all – mod­ern weapons and nation­al secu­ri­ty sys­tems, such as nuclear weapons and hyper­son­ic weapons.  The Depart­ment of Com­merce will use the full extent of its author­i­ties to pre­vent Chi­na from lever­ag­ing U.S. tech­nolo­gies to sup­port these desta­bi­liz­ing mil­i­tary mod­ern­iza­tion efforts.”

In a Wash­ing­ton Post arti­cle of April 9, 2021, Phytium Tech­nol­o­gy was iden­ti­fied as a sup­pli­er of semi­con­duc­tor chips to a super­com­put­er locat­ed at the Chi­na Aero­dy­nam­ics Research and Devel­op­ment Cen­ter (CARDC), that has, accord­ing to the report, been used by the Chi­nese mil­i­tary for the test­ing of hyper­son­ic vehicles.