Washington to bar US investors from 59 Chinese companies

Washington to bar US investors from 59 Chinese companies

Effort designed to stop Beijing using American capital to undermine national security

The Biden administration is banning Americans from investing in dozens of Chinese defence and surveillance technology companies in an effort to stop US capital from being used by China to undermine national security.

President Joe Biden on Thursday signed an executive order to prohibit investments in 59 companies, including marquee Chinese groups such as Huawei, the telecoms equipment manufacturer, and Semiconductor Manufacturing International Corporation, China’s largest chipmaker, which US intelligence says is critical to the Chinese military.

The ban will take effect on August 2. But investors can make trades during the next 12 months to divest their holdings. While Americans are not required to divest the securities, they will be unable 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 both debt and equity securities, but also bans Americans from investing in funds that contain Chinese securities in their portfolios.

One senior US official said the order would ensure that Americans are “not financing the military industrial complex of the People’s Republic of China”. He added that it was “targeted and scoped to maximise the impact on the targets while minimising harm to global markets”.

China’s foreign ministry accused the US of “overextending the concept of national security and abusing its national power” at a briefing on Friday.

“China urges the US to respect market rules and principles and rescind the so-called list that suppresses Chinese companies,” said Wang Wenbin, a ministry spokesman. 

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

Former president Donald Trump last year issued an order banning investments in companies that the Pentagon had put on a list of groups with suspected links to the People’s Liberation Army. It sparked confusion in financial markets because it came with little implementation guidance. US courts also later ruled that the government had not provided sufficient evidence in some cases to justify putting a company on the target list.

The US official said Biden’s order would ensure that the investment ban has stronger legal footing. He added that it would expand the Trump order to include surveillance companies, including Hikvision, that are accused of helping Beijing persecute more than 1m Muslim Uyghurs who have been held in detention camps in the northwestern region of Xinjiang.

The 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 big Chinese telecommunications companies: China Mobile, China Telecom and China Unicom.

“At first glance, it’s quite an extraordinary list of Chinese corporate names. The momentum begun by the previous administration on capital markets sanctions appears to have been sustained and built on,” said Roger Robinson, former chair of the Congressional US-China Economic and Security Review Commission who heads RWR Advisory Group, a consultancy.

Daniel Tannebaum, a 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 behaviour change, depriving access to US capital isn’t a bad starting point, but there is now a two-month gap to when the restrictions come back into effect,” Tannebaum said.

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

“We know for a fact that Wall Street is helping to finance the Chinese Communist party’s effort to weaken and ultimately replace American leadership,” said Rubio. “I am very concerned that President Biden’s Treasury department is too closely aligned with Wall Street to take the actions necessary to prevent American savings from being used to fund the Chinese Communist party.”

US financial markets did not move much on the news. Two big exchange traded funds offering US investors exposure to Chinese stocks — iShares’ MSCI China ETF and its China large-cap ETF — closed the trading session lower by 2 per cent, but had incurred most of their losses earlier in the day, before the policy directive was announced. 

Some analysts suggested that the markets had already digested such moves given how Trump had tackled China. “Trump was the bull in the China shop . . . and was the one to come in and do the damage,” said Brian Bandsma, a portfolio manager with Vontobel. “It’s not going back.”

Later on Thursday the Pentagon is expected to release an updated version of its list of Chinese companies with PLA connections, after Congress required the defence department to provide a new list each year. But the senior official said the Pentagon list would have no bearing on the investment ban outlined in the new executive order.

The official said the Pentagon list would give it “flexibility to message publicly to a wide range of stakeholders about companies that have a wide range of linkages to the different parts of the Chinese government”.

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

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