Bill Seeks Divestment of China-Related Holdings

SACRAMENTO —  Adopting a tactic of the anti-apartheid movement, a San Diego assemblywoman has introduced a bill that would force the state treasurer and public employee pension funds to sell billions of dollars worth of investments in banks and other firms doing business in China.

Assemblywoman Carol Bentley (R-El Cajon) said she decided to write the proposed legislation in response to the Beijing government’s massacre of pro-democracy students in Tien An Men Square last month.

But bankers and the state’s pension fund officers, saying the Legislature should stay out of foreign affairs, are gearing up to fight the measure because it would be two to five times greater than the state-ordered divestment of South Africa-related holdings.

“I don’t think they (Chinese leaders) give a hoot in hell about what the state of California thinks or the Legislature of the state of California thinks,” said Larry Kurmel, executive director of the California Bankers Assn.

Kurmel said Bentley’s bill would affect many California banks, some that have formed business relationships with Chinese firms at the encouragement of state government.

“Up until three months ago, the Legislature and the governor were all talking in glorifying terms about opportunities in the Pacific Rim, both for business and for the state of California,” said Kurmel.

“Now, after the tragic incident, suddenly, there are members of the Legislature who say, ‘Ah, stop that. These guys are bad guys. You ought not to deal with them.’ ”

Like the South Africa divestiture law, which took effect in 1987 and will require total divestiture by next year, the China proposal would prohibit the state treasurer from depositing billions of dollars in banks that have loans to Chinese firms or the Chinese government.

It would also force the state’s retirement funds for public employees, teachers and legislators to complete divestment of holdings in companies that do business in China or with the Chinese government by 1994. The funds would divest one-third of their China-related holdings beginning in 1991.

“I wanted to do something that would clearly show to the Chinese leaders . . . they’re going to have to become more civilized and not treat their own citizens that way,” Bentley said.

Thomas E. Flanigan, chief investment officer for the California State Teachers’ Retirement System, said his preliminary study shows that the measure would require his group alone to sell an estimated $1.2 billion of stocks and bonds in about 11% of the companies listed on the Standard & Poor’s 500 Index.

Firms that would be considered off-limits under Bentley’s bill include such corporate giants as IBM, Dow Chemical, AT&T;, Lockheed, Chrysler Corp., Ford Motor, Xerox, ITT, General Electric, Atlantic Richfield, CBS, Proctor & Gamble, Coca-Cola, Pepsico, Philip Morris, Texas Instruments, Unisys, Fluor Corp. and Exxon.

‘Five Times Bigger’

“This problem is about five times bigger than the list (of restricted companies) in the South African problem,” Flanigan said, adding that the $28.3-billion teachers’ fund intends to mount a “significant challenge” to the proposed legislation.

At the Public Employees’ Retirement System, analysts have figured that China-inspired divestments would affect $7 billion--or 13%--of its huge $53-billion portfolio.

That is twice the $3.5 billion the retirement system was forced to sell off after the South African directive, said DeWitt Bowman, chief investment officer for the system.

“If you have divestment because of South Africa and then China, this becomes a precedent and it becomes an acceptable method of dealing with political and social problems,” he said. “I feel that there’s a perception that these type of actions are cost-free, but they are not.”

Bowman said portfolios that include blue-chip companies with business in South Africa have returned 0.5% to 1.5% more on investments than funds that are South Africa-free.

‘Going to Be Hurt’

Further restrictions involving China would target “successful and growing companies and they have adopted a worldwide attitude,” said Bowman. “They deal globally and inevitably you are going to be hurt if you don’t invest in them.”

Bentley said her bill would call off the divestiture if the Chinese government enacted reforms, but she conceded that the proposed legislation does not address those conditions.

“I would have to feel that we would have a very clear sense of what is happening in China,” she said. “It would have to be an opening up. Now, they’re sort of closed down completely. We have no idea what’s going on in the country.”

Bentley’s divestiture bill may be soon joined by a similar measure being drafted by Assemblyman Tom Hayden (D-Santa Monica). A spokesman for Hayden said the assemblyman intends to introduce a bill that would require divestment of China-related holdings by 1991.

Burton Bill

Meanwhile, the Assembly last month approved a measure by Assemblyman John Burton (D-San Francisco) that could steer state pension fund investments away from companies that practice discrimination against the Catholic minority in Northern Ireland.

Burton’s bill does not mandate divestment but directs the public employees’ and the teachers’ system to conduct annual reviews of corporations in which they hold assets to determine whether they practice “non-discrimination” in the workplace.

Times staff writer Clay Evans contributed to this story.