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'Numerous US corporations, individuals, and institutional investors (i.e., pensions, endowments, insurance companies, etc.) have acquired securities issued by corporate and government entities from China. Figure 6, above, provides an overview of some of the most common channels and parties for such transactions:’

1. ‘Direct purchase of China Onshore Equity Securities: A US institutional investor like a state pension fund places money with a domestic asset manager such as JPMorgan, which in turn obtains Chinese regulatory approval to invest directly in the onshore equity securities listed on the Shanghai or Shenzhen stock exchanges on the US investor’s behalf.’
2. ‘Purchase of American Depository Shares: A US retail investor purchases the US-listed American Depository Receipts (ADRs) of a Chinese company like Pinduoduo. These ADRs confer ownership of the underlying equity shares of Pinduoduo’s Cayman Island holding company, which in turn controls actual operations in mainland China through a variable interest entity (VIE) structure involving a mixture of ownership claims and contractual arrangements.’
3. ‘Purchase of Hong Kong Listed Shares: A US high net worth (HNW) investor places money with an asset manager outside the United States such as Sumitomo Mitsui Trust Asset Management, which in turn acquires the shares of a Hong Kong holding company like Sino Biopharmaceutical Limited that controls a physical business in mainland China.’
4. ‘Direct purchase of China Onshore Debt Securities: A US financial institution like Wells Fargo Asset Management purchases the onshore debt securities of a mainland China company through an international subsidiary using the China Interbank Bond Market Direct (CIBM Direct) program.’
5. ‘Purchase of Debt Securities Issued via Offshore Financing Vehicles: A US institutional investor like Prudential purchases dollar-denominated debt issued by a central state-owned enterprise such as State Grid Corporation of China through a financing vehicle domiciled in the British Virgin Islands.’

‘Official figures on US portfolio holdings of debt and equity securities issued by corporate and government entities from China come from the US Treasury International Capital (TIC) dataset.’

• ‘The US Treasury collects the underlying data through surveys of custodians, which report the geography of investor by legal domicile and the geography of the owned securities by the legal domicile of the entities issuing securities.’

‘Therefore, the official TIC data cover investment structures like those described in Channel 1 of Figure 6, but not those described in Channels 2 through 5.’

• ‘For example, Channels 2 and 3 would be classified as US equity securities investment in firms from the Cayman Islands and Hong Kong, respectively, while Channel 4 would not be considered US debt investment as the securities purchaser is not domiciled in the United States.’

‘TIC data show that US portfolio investment holdings of securities issued by Chinese entities in September 2020 stood at $211 billion for equity and $29 billion for debt, for a total of only $241 billion.’

• ‘This equates to less than 2% of total US international portfolio investment holdings reported in the September 2020 TIC data and is roughly equivalent to US portfolio investment holdings of securities from South Korea, a country that had only 12% of China’s GDP in 2018.’

‘However, the conduits of US securities investment in China that are obscured or ignored in the TIC data constitute a majority of all holdings, so these figures vastly underestimate the true scope at the end of 2020.’