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Image source,Reuters
US President Donald Trump signed an executive order on November 12, prohibiting US investment in Chinese companies owned and controlled by the Chinese military. This move supposedly planned for several months is the latest move by the United States to pressure Beijing after the elections.
This administrative order may affect some of China’s largest companies, such as China Telecom, China Mobile, Huawei and surveillance equipment maker Hikvision.
Under the requirements, US investment companies, pension funds and other types of investors will not be able to buy shares in 31 Chinese companies. These 31 companies were designated by the United States Department of Defense as companies supported by the Chinese military earlier this year.
This administrative order will take effect on January 11, 2021. The Chinese Embassy in Washington has yet to respond to this.
The executive order has been in the works for several months.
Image source,fake images
Ruixing Coffee reported on a fraud scandal in the US capital market. Before the US elections, China Concept Stocks encountered strong resistance in the US and was once seen as a prelude to the decoupling of financial affairs between China and the US.
“China is increasingly using US capital to fund its armed forces, intelligence agencies and other security agencies, as well as to promote the development and modernization of these departments,” the White House said in an executive order.
White House officials said they have been considering the new executive order for several months. The 31 companies affected were designated by the United States as companies backed by the Chinese military earlier this year. Industries involved range from tech companies to large state-owned construction companies.
According to this order, as of January 11, 2021, US investors will not be able to buy shares in these companies. The transaction for the valuation of these assets can last until November 11, 2021 at most.
White House trade adviser Peter Navarro estimates that the market value of these Chinese companies and their subsidiaries is at least $ 50 billion.
“This is a comprehensive administrative order designed to prevent US capital from participating in the militarization of China,” according to Reuters, he told reporters on a conference call.
The potential impact of the first major step towards financial disassociation
The New York Times reported that this is the first major move by the Trump administration to delink the US financial market from Beijing.
Reuters reported that Wall Street responded indifferently to the administrative order that day, and the US stock market had already gradually fallen from its previous gains. On the 12th, the fall of the iShares China Large-Cap ETF (iShares China Large-Cap ETF) continued to expand.
“The market may be concerned that President Trump will continue to escalate tensions with China and Iran in the last two months of his presidency,” said Chris Zar, chief investment officer at the Independent Advisor Alliance, an investment advisory firm. Chris Zaccarelli told Reuters.
Image source,Reuters
It is unclear how US investors will react to this. Technically speaking, American investors can still keep their existing investments.
Nine days after this executive order takes effect, the new president of the United States will take office. Biden hasn’t listed specific Chinese policies, but during the campaign, he promised to pressure the Chinese government on issues like unfair trade and online theft. Reuters said that Biden’s team refused to respond to this administrative order.
The report also said that it is not yet clear how US investors will react to this. This administrative order prohibits transactions. The order defines the transactions as “buy”, meaning, technically speaking, investors can still hold their current investments.
Furthermore, the executive order did not specify specific penalties for violating the regulations, but at the same time gave the US Treasury the ability to use “all the powers” granted by the International Emergency Economic Powers Act (IEEPA). Severe penalties can be triggered under IEEPA authorization.
At the same time, some members of the United States Congress also initiated a bill to prohibit American investments from companies designated as threats by the White House.
Earlier this year, Trump also ordered US government employee pension funds to abandon an investment plan for Chinese companies. The United States also stated that it is currently considering requiring Chinese companies that fail to comply with US auditing rules be delisted from US stock exchanges.
However, this type of investment only represents a small part of the total assets of US investors. A report released earlier this year noted that researchers commissioned by regulators at the U.S. Securities and Exchange Commission estimated that, as of the end of April, U.S. mutual funds held approximately $ 43.5 billion. in Chinese stocks. And bonuses.
The Investment Company Institute (Investment Company Institute) is a trade association that includes members of US mutual funds and other fund managers. A spokesman for the association said it is currently studying the latest administrative order and has no further response. .
