The U.S. government announced on Dec. 28 a strengthened executive order prohibiting U.S. companies and individuals from investing in companies controlled by the Chinese military, which also applies to subsidiaries of “blacklisted” companies.
Secretary of State Mike Pompeo tweeted that day that “President Trump is protecting U.S. investors and pension funds. His executive order prohibits ETF funds and index funds from investing in Communist Party military companies and subsidiaries. The team worked well together on today’s announcement.” A statement issued by the U.S. Treasury Department noted that the order applies to all transactions by U.S. persons, including individuals, institutional investors, pension funds, university endowments, banks, bond issuers, venture capital firms, private equity firms, index companies, and other U.S. entities, including those operating overseas. The U.S. Treasury Department clarified that the executive order applies to any publicly identified subsidiaries of Chinese companies controlled by the Chinese military and intends to include companies that are more than 50 percent owned by Chinese military-controlled companies on the list.
Trump signed an executive order Nov. 12 that prohibits companies in the United States or anyone else from investing in Chinese companies with ties to the Chinese military. The executive order will take effect on Jan. 11 next year. The total number of Chinese companies on the U.S. Defense Department’s “blacklist” now stands at 35, including huawei, Hikvision, SMIC and other giants. The U.S. Department of Defense also previously said in a statement that it would continue to update the list “where appropriate. The South China Morning Post estimates that the total market value of these 35 companies is at least $440 billion. Pompeo said in the statement that this clarification will ensure that U.S. investors do not unknowingly support or fund “the development and modernization of the military, intelligence and security services of the People’s Republic of China.
It is understood that index providers, including Minnesota, FTSE Russell and S&P Dow Jones, had responded earlier this month by removing stocks affected by the ban, such as SMIC and Hikvision, from their stock and bond markets. More index providers will likely be involved in the fine-tuning before Washington’s executive order takes effect from Jan. 11 next year. U.S. investors will be required to liquidate their existing holdings by Nov. 11 next year.
Earlier, Reuters and other media reports said that the U.S. Treasury Department tried to water down the White House’s executive order, hoping to exclude “blacklisted” corporate subsidiaries from the ban, but the State Department and the Department of Defense opposed. However, the Treasury Department’s guidelines make clear that the ban applies to “any subsidiary of a Chinese PLA company,” and that the Treasury Department has compiled a list of such companies and is considering listing publicly traded entities in which Chinese military companies own or control more than 50 percent of the shares.
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