U.S. President Donald Trump signed an order barring American investments in Chinese firms owned or controlled by the military, the latest White House bid to pressure Beijing over what it views as abusive business practices.
China is “increasingly exploiting” American capital for “the development and modernization of its military, intelligence, and other security apparatuses,” posing a threat to the U.S., according to the executive order signed Thursday. The order prohibits 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 an additional 11 companies added in August.
Relations between the U.S. And China are expected to remain rocky despite Trump’s defeat to Democrat Joe Biden in the presidential election last week. The Trump administration has continued to follow through on vows to punish Beijing over the coronavirus pandemic, its treatment of Muslim minorities and the crackdown on dissent in Hong Kong.
Shares of top Chinese firms — including China Mobile Ltd. And China Telecom Corp Ltd. — tumbled. China Mobile, whose controlling shareholder China Mobile Communications Group is on the list, dropped 6.3% in Hong Kong, the biggest intraday loss in almost eight months. China Telecom slumped 10.4%, its biggest drop in 12 years.
Chinese officials have threatened to respond to previous Trump administration actions with their own blacklist of U.S. Companies. Dongshu Liu, an associate professor of Chinese politics at the City University of Hong Kong, said Beijing would likely shrug off such “symbolic” provocations while it waits to see what kind of policy the Biden administration will put into place.
“For those who are clearly owned by the military, they don’t have a lot to do with the U.S.,” Liu said. “China is waiting for Trump to step down. It will avoid being too sensitive — be calm and don’t overreact — to any of Trump’s actions towards China as his term winds down.”
The latest prohibition will go into effect on Jan. 11, and allows U.S. Investment firms and pension funds to divest their holdings in companies linked to the Chinese military over the next year. If the U.S. Determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.
U.S. National Security Advisor Robert O’Brien said in a statement that many of the companies at issue were traded on exchanges around the world. American investors could unknowingly provide funds through passive investments such as mutual funds and retirement plans, he added.
The order “serves to protect American investors from unintentionally providing capital that goes to enhancing the capabilities of the People’s Liberation Army and People’s Republic of China intelligence services,” O’Brien said.
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 “halt all steps” associated with putting government employees’ savings in a fund that includes stakes in Chinese companies.
Separately, O’Brien said Wednesday that China’s latest clampdown in Hong Kong showed that the “one country, two systems” arrangement designed to ensure the city’s autonomy amounted to a “fig leaf” for dictatorship, and signaled new sanctions.
The warning came after China’s top legislative body on Wednesday passed a resolution allowing for the disqualification of any Hong Kong lawmakers who were not deemed sufficiently loyal. Chief Executive Carrie Lam’s government immediately banished four legislators, prompting the remaining 15 in the 70-seat Legislative Council to resign en masse hours later.
While the U.S. Has imposed sanctions against Lam and some officials in Beijing, it has so far held off punishing the country’s senior hierarchy. Such a move would infuriate Beijing and accelerate a deterioration in relations between the two nations on a variety of issues.