China fell out of the top 12 ranking of the California State Teachers’ Retirement System based on country asset exposure, following a broader US pension retreat from the world’s second largest economy.

The pension giant’s fund allocation to China trailed South Korea, India, Mexico and Ireland by the end of May, according to its latest disclosure based on market value and revenue exposure. China’s weight in its overall investment book tumbled from 2.1% at the end of 2020, the latest percentage undisclosed.

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South Korea rounded out as the fund’s 10th largest market, accounting for 0.6% exposure at the end of May. It was followed closely by Mexico and Ireland, Calstrs said. The pension fund had an investment portfolio of $309 billion then versus $283 billion in late 2020. That means the value of its China allocations tumbled by at least 69% over the last three years.

Trade journal Pensions & Investments ranked Calstrs as the second-largest defined benefit pension manager, trailing only the California Public Employees’ Retirement System. As late as the end of 2022, Calstrs had 1% of its portfolio parked in China across all asset classes, making the nation its sixth-biggest geographical allocation, according to a document posted on its website. It was fourth in late 2020, behind only the US, Japan and the UK.

The slide came during a spat between the US and China over issues ranging from technology to audits of Chinese companies and the future of Taiwan and Hong Kong. Some American politicians have balked at the fact that the country’s pension funds were backing companies in a geopolitical and economic rival.

President Joe Biden is planning to sign an executive order to limit critical US technology investments in China by mid-August, people familiar have said.

The Calstrs report did not reveal to what extent the slippage was the result of active reduction of holdings versus poorer performance of Chinese assets compared with other markets.

The pension fund’s largest global exposure is to public equity, accounting for more than a third of assets and over half of risk. Calstrs had about $3.7 billion invested in Chinese public equities at the end of last year.

In this bucket, the decline in China exposure has been driven by underperformance relative to peers elsewhere, Calstrs said in an emailed response to a Bloomberg News query. In the 2.5 years through June 2023, the MSCI China IMI index used by the pension as a benchmark had an annualized loss of nearly 19%, against the 4.1% gain of the MSCI ACWI IMI gauge.

Beijing’s shock suspension of Ant Group Co.’s record listing in late 2020 marked the start of a years-long crackdown on technology companies and shook investor confidence.

Calstrs Chief Investment Officer Christopher Ailman has long expressed mixed feelings about investing in China.

Speaking on Bloomberg Television on the heels of the Ant IPO halt, Ailman said the event amplified the point that investors couldn’t fight the Communist Party when investing in China and the country was both a friend and a foe.

“You can make money there. It’s gonna have a growth economy,” he said, while adding that the country is “full of” environmental, social and governance issues. “As investors, it’s a real conundrum for us.”

Still, the pension giant in August 2022 solicited bids from dedicated China stock managers for the first time. It has shortlisted 19 candidates, the latest email said. Such managers “could provide more specialized expertise on the ESG aspects of the China market compared to a broad global emerging markets approach,” it added.

Among other North American retirement funds, The Ontario Teachers’ Pension Plan announced earlier this year it was shutting an Asia equity investment team in Hong Kong, cutting five jobs. It said it would continue to invest in private and public assets in China via fund partners, and in public companies through its global investment teams. It halted direct investment in Chinese private assets, people familiar said in January.

Teacher Retirement System of Texas last year switched to a tailored emerging markets stock benchmark, effectively halving its target allocations to Chinese stocks.