Kudlow. Photo: Drew Angerer/Getty Images

Top White House officials have bluntly warned the head of a board that administers railroad workers' retirement benefits that the investment trust he oversees is exposing investors to undue economic risk and endangering U.S. national security because it invests in certain Chinese companies.

Driving the news: The letter, dated July 7 and obtained by Axios, asks for a response within a week as to whether the U.S. Railroad Retirement Board, an independent federal agency, will cut off these Chinese investments.

Why it matters: This is the latest action the Trump administration has taken to curtail U.S. investment in China — part of a broader pressure campaign the administration is waging against the Communist Party of China.

Behind the scenes: Trump's national security and economic advisers Robert O'Brien and Larry Kudlow use the letter to take board chairman Erhard Chorle to task — and raise the prospect that these investments could be unlawful without being explicit about what they'll do if the board doesn't change course.

  • They scold Chorle for "permitting hundreds of millions of dollars of railroad workers' retirement assets to be invested in companies from the People's Republic of China (PRC)...that present a national security risk to our country."
  • They allege that the investment trust "exposes the retirement funds of railroad workers" to significant risk and that the investments channel money from American workers into Chinese companies that violate U.S. sanctions and "assist the PRC's efforts to build its military and oppress religious minorities."
  • Chorle is a Trump nominee. His term is set to run into 2022.

“The investment of the retirement savings of hardworking Americans in Chinese companies is neither prudent from a risk perspective nor responsible from a long term strategic perspective, especially given China’s culpable actions with respect to the pandemic,” National Security Council spokesman John Ullyot said in a statement.

O'Brien and Kudlow allege that the list of companies that receive railroad workers' retirement investment funds includes "contractors that provide military aircraft, missiles, and telecommunications support to the People's Liberation Army..."

  • "...companies like Hikvision that manufacture surveillance equipment that China uses to oppress religious minorities, and at least one company, ZTE, engaged in a multi-year conspiracy to supply, build, and operate telecommunications networks in Iran using U.S.-origin equipment in violation of the U.S. trade embargo, and committed hundreds of U.S. sanctions violations involving the shipment of telecommunications equipment to North Korea."

The other side: Board spokesman Michael Freeman said the board "is looking into the issues raised in the letter" and will respond directly to O'Brien and Kudlow. He said the National Railroad Retirement Investment Trust manages most railroad retirement funds, not the board, and that the board would discuss the issues with them.

The big picture: Chinese state secrets law forbids Chinese companies listed on U.S. stock exchanges from complying with many audit requirements mandated by U.S. law, meaning that economic risks from fraudulent practices, and political risks from close association with Chinese entities that are or may become sanctioned, are not disclosed.

  • As Axios recently reported, these concerns drove a recent bipartisan Senate vote to delist Chinese companies that do not allow third-party audits.

Editor's note: This story has been updated with a statement from the board.

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