BlackRock Exceptionalism in the Geopolitics of Proxy Voting

As US–China geopolitical and economic rivalry intensifies, US mutual fund investments in Chinese companies have come under growing national security scrutiny, yet remarkably little is known about how these funds actually exercise their voting rights in Chinese companies. In a recent working paper, I provide the first empirical analysis of US mutual fund proxy voting in Chinese firms, uncovering a striking divergence among the Big Three asset managers and raising broader questions about incentive misalignment in global asset management under geopolitical conflict.

Central to this analysis is China's ‘party-building’ (dangjian) reform. Since 2015, this initiative has pushed companies to formally incorporate Chinese Communist Party (CCP) committees into their corporate charters. These amendments officially embed political authority within the governance structure, specifying the role of Party committees in strategic decision-making and personnel appointments. While most SOEs possess the voting power to meet the two-thirds legal threshold for charter amendments, the support of international institutional investors and a high approval rate serve as powerful signals of political conformity and market legitimation.

Documenting ‘BlackRock Exceptionalism’

Analyzing 24,556 fund-level voting records from 2018 to 2022, I observe a pronounced divergence among the Big Three. The proxy advisor Institutional Shareholder Services (ISS) overwhelmingly recommends rejecting these amendments on corporate governance grounds, citing risks to accountability and transparency.

While the majority of funds align with these recommendations, the following patterns emerge:

• Vanguard and State Street: These firms largely followed ISS guidance, opposing the institutionalization of CCP committees with approval rates of 1.51% and 0.04%, respectively.
• BlackRock: In contrast, BlackRock supported these amendments in 74.70% of cases.

Regression analysis confirms that ISS recommendations are the strongest predictor of mutual fund voting behaviour broadly, while support for the amendments is more likely in votes involving SOEs and larger firms. BlackRock, however, displays a distinctive pattern: it is more likely to support state-owned, large, cross-listed, more profitable, and lower-leveraged firms.

Incentive Misalignment in Proxy Voting 

This ‘BlackRock exceptionalism’ is not readily explained by wealth maximization for fund beneficiaries. An event study reveals that the adoption of party-building provisions is associated with negative abnormal returns. Share prices declined around announcement windows regardless of how BlackRock voted, suggesting that these votes were not driven by short-term shareholder value.

A more compelling explanation involves BlackRock’s strategic commercial ambitions in the Chinese market. In August 2020, following the Phase One US-China trade deal, BlackRock became the first global asset manager to obtain a wholly foreign-owned mutual fund license in China. Its onshore fund launched in September 2021, raising approximately USD 1 billion. The temporal overlap between BlackRock's sustained support for CCP governance reforms and the regulatory milestones granting it first-mover access to the Chinese market is striking, as is the decline in its approval rate after the license was secured, from near-unanimous support between 2018 and 2021 to 54.88% in 2022.

The paper highlights two broader layers of incentive misalignment in proxy voting under geopolitical conflict that have gone largely unexamined. First, it documents a principal-agent conflict in which proxy voting aligns with the commercial interests of asset managers, in deference to the party-state in a system of state capitalism, rather than those of the fund’s beneficiaries, paralleling deference to corporate managers in the US context. Second, it identifies a policy misalignment where the voting behavior of global intermediaries diverges from the preferences of US beneficial owners and the US policy objective of economic decoupling. As policymakers evaluate the concentrated voting power of large intermediaries through initiatives like the INDEX Act, the case of BlackRock underscores the need to reassess the fiduciary and political economy implications of proxy voting in a geopolitically contested global market.

The author’s working paper can be found here. 

Lauren Yu-Hsin Lin is a Professor of Law at the City University of Hong Kong School of Law and a Research Member of the European Corporate Governance Institute (ECGI).