Washington to exclude US investors from 59 Chinese companies

The Biden administration prohibits Americans from investing in dozens of Chinese defense and surveillance technology companies in an attempt to prevent US capital from being used by China to undermine national security.

President Joe Biden on Thursday signed an executive order banning investments in 59 companies, including prominent Chinese groups such as Huawei, the telecommunications equipment maker, and Semiconductor Manufacturing International Corporation, China’s largest chipmaker, which, according to US intelligence, is essential for the Chinese military.

The ban will go into effect on August 2. But investors can trade over the next 12 months to sell off their holdings. Although Americans are not required to sell the securities, they will not be able to sell their holdings after the one-year period without special approval from the US Treasury, which will oversee the new regime.

The executive order prohibits direct investment in debt and equity securities, but also prohibits Americans from investing in funds that contain Chinese securities in their portfolios.

A senior US official said the ordinance would ensure Americans “do not fund the military-industrial complex of the People’s Republic of China.” He added that it was “targeted and limited to maximize impact on targets while minimizing damage to global markets.”

The Chinese Foreign Ministry accused the United States of “extending the concept of national security and abusing its national power” during a briefing on Friday.

“China urges the United States to abide by the rules and principles of the market and to cancel the so-called list that suppresses Chinese companies,” said Wang Wenbin, a spokesman for the ministry.

The ban marks the Biden administration’s latest effort to take an increasingly hawkish stance towards China on everything from its crackdown on Uyghurs to its aggressive military activity in the South and East China Seas. It comes as Biden prepares to travel to Europe to attend the G7 summit where China is expected to be a topic of discussion.

Last year, former President Donald Trump issued an order banning investments in companies the Pentagon had put on a list of groups suspected of being linked to the People’s Liberation Army. It confused the financial markets because it was accompanied by few guidelines for implementation. U.S. courts also later ruled that the government had failed to provide sufficient evidence in some cases to justify putting a business on the target list.

The US official said Biden’s order would ensure the investment ban has a stronger legal basis. He added that he would extend the Trump order to surveillance companies, including Hikvision, accused of helping Beijing persecute more than one million Muslim Uyghurs held in detention camps in the northwestern region of Xinjiang.

Targeted companies also include Aviation Industry Corporation of China, China National Offshore Oil Corporation, China Railway Construction Corporation, and China National Nuclear Corporation. The list contains three major Chinese telecommunications companies: China Mobile, China Telecom and China Unicom.

“At first glance, this is a pretty extraordinary list of Chinese company names. The momentum started by the previous administration on capital markets sanctions appears to have been sustained and built upon, ”said Roger Robinson, former chairman of the Chinese-US Congressional Economic and Security Review Commission who heads RWR Advisory Group, a consultancy firm.

Daniel Tannebaum, partner at Oliver Wyman, said Biden’s order would be easier to implement than the less clear order Trump issued in November.

“If you want to try and force behavior change, denying access to US capital is not a bad place to start, but there is now a two-month gap before restrictions come back into effect,” said Tannebaum.

But Marco Rubio, a Republican senator from Florida, expressed concern that Biden had given the Treasury more influence over the process.

“We know for a fact that Wall Street is helping to fund the efforts of the Chinese Communist Party to weaken and ultimately replace American leadership,” Rubio said. “I am very concerned that President Biden’s Treasury Department is too closely tied to Wall Street to take the necessary steps to prevent US savings from being used to fund the Chinese Communist Party.”

US financial markets haven’t moved much on the news. Two large exchange-traded funds offering U.S. investors exposure to Chinese equities – iShares’ MSCI China ETF and its large-cap China ETF – closed the trading session down 2%, but suffered most of their losses. losses earlier today, before a policy directive was announced.

Some analysts have suggested that the markets have already digested such moves given the way Trump has tackled China. “Trump was the bull of the Chinese store. . . and he’s the one who did the damage, ”said Brian Bandsma, portfolio manager at Vontobel. “It’s not going to come back.”

Later Thursday, the Pentagon is expected to release an updated version of its list of Chinese companies with PLA ties, after Congress asked the Defense Department to provide a new list each year. But the senior official said the Pentagon list would not affect the investment ban outlined in the new executive order.

The official said the Pentagon’s list would give him “the flexibility to publicly communicate to a wide range of stakeholders about companies that have a wide range of ties to different parts of the Chinese government.”

Additional reporting by Eric Platt and Aziza Kasumov in New York, and Christian Shepherd in Beijing

To pursue Demetri Sebastopulo on Twitter

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