(Bloomberg) -- US lawmakers scrutinizing China said Wall Street executives asked to have their identities withheld when meeting with them so as not to alienate their Chinese investors. 

“We have people tell us explicitly that their Chinese LPs would object if they knew they were meeting with us” said Representative Mike Gallagher, a Wisconsin Republican and chairman of the House Select Committee on the Chinese Communist Party, referring to Chinese investors in funds managed by US firms. 

“When they meet with members of Congress, it’s like we’re in some witness protection program and we have to shuttle them around,” Gallagher said of the American executives, adding that such requests highlight “the dilemma we face and how difficult it is to mobilize action in light of those concerns.” 

Gallagher spoke Tuesday at a hearing in New York called by lawmakers to draw attention to threats they say China poses to the financial system. It’s the latest in an effort by the House panel to scrutinize US business ties with China, including the flow of money from US investors into companies that could aid the country’s military or that allegedly engage in forced labor or human rights abuses. 

It included testimony from Jay Clayton, former chairman of the Securities and Exchange Commission, and Anne Stevenson-Yang, founder of J Capital Research. 

Jim Chanos, founder of investment manager Kynikos Associates, had been scheduled to appear but canceled due to travel problems. Gallagher said that for the most part, fund managers “are not eager” to testify before the committee. 

Raja Krishnamoorthi, the panel’s top Democrat, said that as members of the committee have traveled the country, they have concluded that the Chinese Communist Party “has taken aggressive steps to advance its interests at the expense of American ones.” 

“Doing nothing in response to the risks posed by the CCP’s economic aggression is not an option,” he said.

But lawmakers and speakers at the hearing agreed that any policies enacted to address the risks will need to be clear and to take the concerns of investors on board. 

“Private sector actors are looking for, and will respond to, China‐related policies that are pragmatic, coherent and consistent over time,” Clayton said in prepared remarks. “In turn, those private sector responses will drive the advancement of policy objectives.”

Concern over an economic slowdown in China has spurred a move toward US stocks and away from emerging markets, including China, according to a recent Bank of America survey of global fund managers. Investors cited concerns over China’s real estate market and voiced skepticism about the government’s ability to boost the economy through stimulus.

Read more: BofA Survey Shows ‘Dramatic Shift’ Toward High-Flying US Stocks

Members of the House panel have held a series of sessions across the country to question business leaders, including executives of Apple Inc., Walt Disney Co., Ford Motor Co. and General Motors Co. 

This week’s trip to New York, organized by Gallagher and Krishnamoorthi of Illinois, was organized to gather information from Wall Street leaders about potential threats to the economy and financial system from China as well as from US capital flowing to the country.

‘Dovish’ View

Following a series of meetings with asset managers and bankers on Monday, Gallagher said Wall Street leaders have a “more dovish” view than he does on China. Gallagher says that he thinks the committee can reach an understanding with the investing world, but it needs to legislate a coherent strategy. 

Stevenson-Yang said US investors have a “deep and broad” relationship with China and can’t simply decouple. Still, lawmakers need to stop letting China’s “wolf warrior” diplomats intimidate the US out of speaking out against human rights abuses, she said. 

“There are some measures that we can take to limit the damage” of the “square peg in the round hole” of the US economy, she said, referring to China. 

Wall Street and the investment community have looked to what has happened with Russia’s invasion of Ukraine to understand what might happen with China and have started to think about where they might need to pull back, Clayton said.

“Investors respond to return for level of risk,” he said. If investors see that risk has increased with respect to China, they will pull back, he said. 

Gallagher said that, given the mounting risks of China, “It’s not clear to me that this is even a good investment.” 

This week’s work comes after the panel launched a review in July of investment funds that facilitate the flow of US money into Chinese companies that lawmakers allege aid the country’s military or use or abuse forced labor. The lawmakers demanded information from BlackRock Inc., the world’s largest money manager, and MSCI Inc. about the inclusion of certain Chinese companies in US investment funds held by retail and institutional traders.

Krishnamoorthi made a direct plea in his closing remarks, asking firms to stop investing in Chinese companies with ties to the military or to alleged human rights abuses. 

“Please divest from these companies,” he said. “Don’t be a part of the problem.”

 

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