Outgoing Trump administration bans investments in firms linked to Chinese military

The Trump administration has unveiled an executive order prohibiting US investments in Chinese firms. 

The order ramps up pressure on Beijing after the US election, banning investments in firms that are owned or controlled by the Chinese military.

The move is designed to deter US investment firms, pension funds and others from buying shares of 31 Chinese companies that were designated by the Defence Department as backed by the Chinese military earlier this year.

The order, to this end, could impact some of China's biggest companies, including telecoms firms China Telecom Corp Ltd, China Mobile Ltd and surveillance equipment maker Hikvision.

Starting January 11, the order will prohibit purchases by US investors of the securities of those companies. Transactions made in order to divest ownership in the companies will be permitted until November 11, 2021.

"China is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses," said the order released by the White House.

White House trade advisor Peter Navarro estimated that at least half a trillion dollars in market capitalisation was represented by the Chinese companies and their subsidiaries.

The move is the first major policy initiative by President Donald Trump since losing the November 3 election to Democratic rival Joe Biden and indicates that he is seeking to take advantage of the waning months of his administration to crack down on China, even as he has appeared laser-focused on challenging the election result.

Biden has won enough battleground states to surpass the 270 electoral votes needed in the state-by-state Electoral College that determines the next president, but Republican Trump has so far refused to concede, citing unsubstantiated claims of voting fraud.

Thursday's action is likely to further weigh on already fraught ties between the world's top two economies, which are at loggerheads over China's handling of the coronavirus pandemic and its move to impose security legislation on Hong Kong.

Biden has not laid out a detailed China strategy but all the indications are that he will continue a tough approach to Beijing, with whom Trump has become increasingly confrontational in his last year in office.

The order echoes a bill filed by Republican senator Marco Rubio last month which sought to block access to US capital markets for Chinese companies that have been blacklisted by Washington, including those added to the Defense Department list.

In August, US Securities and Exchange Commission and Treasury officials urged Trump to delist Chinese companies that trade on US exchanges and fail to meet its auditing requirements by January 2022.

Thursday's move received a cool reception on Wall Street, where shares were already pulling back from recent gains. The iShares China Large-Cap ETF extended falls.

Still, it was unclear how investors would react. The order bans transactions, which it defined as "purchases," so investors would technically be able to hold onto current investments.

While the document does not spell out specific penalties for violations, it gives the Treasury Department the ability to invoke "all powers" granted by the International Emergency Economic Powers Act, which authorizes the use of tough sanctions.

Questions also remain about whether Biden, who is set to take office just nine days after the order goes into effect, would enforce it or simply revoke it.

Below is a list of those companies based on Department of Defense data found --

Aviation Industry Corporation of China
China Aerospace Science and Technology Corp
China Aerospace Science and Industry Corp
China Electronics Technology Group Corp
China South Industries Group Corp
China State Shipbuilding Corp
China North Industries Group Corp (Norinco Group)
Hangzhou Hikvision Digital Technology
Huawei Technologies
Inspur Group
Aero Engine Corporation of China
China Railway Construction Corp
CRRC Corp
Panda Electronics Group
Dawning Information Industry Co
China Mobile Communications Group
China General Nuclear Power Group
China National Nuclear Corp
China Telecommunications Corp
China Communications Technology
China Communications Construction Company (CCCC)
China Academy of Launch Vehicle Technology (CALT)
China Spacesat
China United Network Communications Group
China Electronics Corporation
China National Chemical Engineering Group Co Ltd
China National Chemical Corporation (ChemChina)
SinoChem Group Co Ltd
China State Construction Group
China Three Gorges Corporation
China Nuclear Engineering & Construction Corporation

(with inputs)