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.