Trump bans investments in companies controlled by Chinese military


(Bloomberg) – Donald Trump has signed an order banning US investments in Chinese companies determined to be owned or controlled by the country’s military, the White House’s latest attempt to pressure Beijing over what the president has called abusive business practices.

China is “increasingly exploiting” US capital for “the development and modernization of its military, intelligence and other security apparatuses,” which poses a threat to the United States, according to the decree signed Thursday.

Relations between the United States and China have deteriorated following the signing of a trade deal earlier this year. Trump has also repeatedly vowed to punish Beijing for the coronavirus pandemic, its treatment of Muslim minorities and the crackdown on dissent in Hong Kong. Chinese officials have threatened to strike back with their own blacklist of US companies.

Major Chinese companies – including China Mobile (NYSE 🙂 Ltd and China Telecom (NYSE 🙂 Corp Ltd. – came across reports of an impending executive order, which will ban U.S. investment firms and pension funds from buying and selling shares of 20 Chinese companies designated by the Pentagon as having military ties in June, as well as 11 additional companies added at the end of August.

The ban will go into effect on Jan. 11 and will allow U.S. investment firms and pension funds to divest stakes in companies linked to the Chinese military within the next year. If the United States determines that other companies have military ties in the future, American investors will have 60 days from that decision to divest.

US National Security Advisor Robert O’Brien said in a statement that many of the companies in question are traded on stock exchanges around the world. American investors may unknowingly provide funds through passive investments such as mutual funds and pension plans, he added.

The order “serves to protect US investors from the unintentional provision of capital intended to strengthen the intelligence capabilities of the People’s Liberation Army and the People’s Republic of China,” said O’Brien.

In a move earlier this year to restrict the flow of money, the administration sent a letter to Michael Kennedy, then chairman of the Federal Retirement Thrift Investment Board, telling him to “end all steps” associated with the putting savings from government employees into a fund that includes stakes in Chinese companies.

Separately, O’Brien said on Wednesday that China’s latest crackdown in Hong Kong shows that the one country, two systems arrangement for the territory amounts to a “fig leaf” for the dictatorship, and warned against new sanctions.

The warning came after China’s highest legislative body on Wednesday passed a resolution allowing the disqualification of any Hong Kong lawmaker who was not deemed sufficiently loyal. Chief Executive Carrie Lam’s government immediately banned four lawmakers, prompting the other 15 members of the 70-seat Legislative Council to resign en masse hours later at a joint press briefing.

While the United States has imposed sanctions on Lam and some officials in Beijing, it has so far delayed punishing the country’s top hierarchy. Such a move would infuriate Beijing and accelerate the deterioration of relations between the two nations on a variety of issues.

(Updates to previous action on government pension funds, in eighth paragraph.)

© 2020 Bloomberg L.P.


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