The U.S. government is using two different sanctions blacklists to target Chinese companies with ties to the Chinese Communist regime, which the U.S. side believes threaten U.S. national security.
The U.S. government is using two different sanctions blacklists to target Chinese companies with ties to the Chinese Communist regime that the U.S. side believes threaten U.S. national security. One list of entities, compiled by the Department of Commerce, and the other, a blacklist of Chinese Communist Party military companies, is put together by the Department of Defense. There are different sanctions for each type of targeted companies.
- The Commerce Department’s Entity List
If included on the Commerce Department’s Entity List, such companies are prohibited from doing business with U.S. companies without obtaining permission from the U.S. government.
This list was established in 1997 to sanction companies that help create weapons of mass destruction. It has since been expanded to include companies deemed to be involved in activities “contrary to the national security or foreign policy interests of the United States.
According to the Department of Commerce and Security, sanctions can be imposed on “businesses, research institutions, government and private organizations, individuals, and other types of legal persons,” according to the list, which is administered by the Department of Commerce as part of the U.S. Export Administration Regulations.
- The Pentagon List
The companies on this list are off-limits to American investment.
At the June announcement, the Pentagon said it was providing a list of companies based on the scope of the 1999 National Defense Authorization Act for “Chinese Communist military companies operating in the United States.
No previous administration has provided the reports required by the act. This list has been updated several times since then. The president also has the authority to impose financial sanctions on these companies under the International Emergency Economic Powers Act of 1977.
Last November, Trump issued an executive order prohibiting Americans from investing in companies included on the list, and those who hold stock in these companies are limited to withdrawing their capital.
- Which companies are on the list?
Dozens of companies have been blacklisted, some of them among the world’s best-known Chinese companies. For example, smartphone maker Xiaomi Corp. and tech giant huawei Technologies Co. are on the Pentagon’s list. Huawei is also on the Commerce Department’s list of entities.
China National Offshore Oil Corporation, China’s leading deepwater explorer, is also on the Pentagon’s list, as is China’s top chipmaker, Semiconductor Manufacturing International Corp.
- What about China’s big telecom providers?
The New York Stock Exchange said it finalized the delisting of the depositary receipts of China Mobile Co., China Telecom Corp. and China Unicom Hong Kong Ltd. after an embarrassing series of back-and-forths to comply with the Pentagon’s blacklist sanctions, highlighting the complexity and tensions in the U.S.-China relationship.
Companies such as MSCI Inc. that offer financial investment indices have removed the three companies from their indexes. BlackRock Inc. and Vanguard Group Inc. have also been selling shares of these blacklisted companies as a result.
- Declining performance of telecom stocks
The once-legendary share prices of all three companies have been hit by news of NYSE delisting since the exchange first announced earlier this year that it was calling for the companies to be delisted. They initially fell sharply on the Hong Kong stock market in early January, then stabilized with the help of a massive influx of money from mainland China.
Even so, all three companies have fallen more than 20 percent in the past 12 months through mid-January, while the Hong Kong stock market as a whole has declined only slightly in the same period.
- What will the Biden administration do?
Controversial President-elect Joe Biden’s policy toward China has yet to fully emerge. Bloomberg reports that Jefferies Equity Analytics said on Jan. 15 that they expect the U.S.-China dispute over technology to ease, and predict the U.S. may shift to targeting technology export restrictions rather than resorting to sanctions against companies. They believe lifting the ban on investment in companies on the Pentagon’s list is unlikely, especially in the first six months after Biden takes office.
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