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TAIPEI / HONG KONG – China’s largest contract chipmaker and one of its largest oil groups were added to a U.S. blacklist for alleged military ties, increasing tensions between Washington and Beijing in the final days of the outgoing Trump administration.
Semiconductor Manufacturing International Co. and China National Offshore Oil Corp. were among four additions to the US Department of Defense’s list of “Chinese communist military companies” on Thursday night.
China Construction Technology Co. Ltd. and China International Engineering Consulting Corp. were also added.
The move comes after President Donald Trump said in an executive order in November that China is increasingly exploiting American capital to enable the development and modernization of its military. The executive order is intended to prevent any American capital from going to blacklisted military-related Chinese companies.
The executive order takes effect on January 11 and prohibits “any American person” from owning securities, directly or through funds, in companies believed to have ties to the Chinese military. Investors who already own such assets will have until November 2021 to dispose of them.
SMIC is the largest semiconductor company in China. It was delisted from New York last year after listing in the US since 2004, and joined the Shanghai STAR technology board, the national version of the Nasdaq, this summer.
The Chinese chipmaker’s shares are also listed in Hong Kong, and several US funds such as Vanguard Group, BlackRock Institutional Trust Company, Invesco Capital Management and Fidelity Management & Research Company are among its top investors.
SMIC said Friday morning in a stock exchange statement that it is aware of the US Department of Defense’s decision and is evaluating the impacts, while warning investors about investment risks.
Trading in its shares was halted in Hong Kong on Friday morning, but resumed at 1 pm Shares closed the day down 5.4%.
In a separate filing from the stock exchange, the company said that the blacklisting will not materially affect its business and reiterated that it has no ties to the Chinese military.
Previously, the US Department of Commerce tightened export control regulations on SMIC by asking US suppliers to apply for licenses before shipping any tools or materials to the Chinese company, citing the “unprecedented risk” posed by the company’s alleged ties to the military.
The other three companies added to the blacklist are all key state conglomerates controlled directly by the State Assets Supervision and Administration Commission of the State Council, or SASAC.
Furthermore, CNOOC is one of the Big Three State Oil Companies in China. Hong Kong-listed shares of its majority-owned central unit fell 3.9% during trading on Friday, having already lost 18.5% in value this week after Reuters first reported the listing. blacklisted from its parent company.
The listed unit, which shares the same acronym as its parent, said in a stock exchange statement on Friday that it is “comprehensively evaluating the impact of the situation on the Group and [closely] monitor relevant follow-up developments. “
The other two blacklisted companies are major players in the construction sector.
CCTC, formerly China Architecture Design & Research Group, made headlines in 2012 when it bought CPG Corp. of Singapore. The acquisition of a global construction engineering company was seen as a new tactic in Beijing. zouchuquor “exit” policy to encourage foreign investment.
“This is the first time that China’s high-tech service industry has gone out and successfully completes an overseas acquisition,” Xiu Long, then a director of the Chinese company, told reporters at the time. “This is not an opportunistic purchase but is part of the national policy to encourage exit and improve international competitiveness.”
Meanwhile, CIECC is a key consultant for the central government for decisions on the main construction and engineering contracts, both in the country and abroad.
CIECC has been involved in key infrastructure projects in China, including the 1,300 km Beijing-Shanghai high-speed railway. © AFP / Jiji
The company participated in iconic national infrastructure projects, such as the West-East Gas Pipeline connecting Talim Basin in Xinjiang to the outskirts of Shanghai more than 4,000 km away, and the 1,300 km Beijing-Shanghai high-speed railway. Overseas, the company is associated with projects under the Belt and Road Initiative, including the port of Gwadar in Pakistan.
CIECC includes the State Administration of Science, Technology and Industry for National Defense among its main clients. The central government body, under the Ministry of Industry and Information Technology, is in charge of the general planning of military technology.
The blacklist of US Chinese companies has continued to grow since last year. In June, the Defense Department added 20 Chinese companies to the list, including China’s largest telecom operator China Mobile, the world’s third-largest server provider, Inspur, the world’s number one surveillance camera provider, Hikvision, and Huawei.
Last year, the department named China Nuclear Engineering & Construction Corp., the country’s research entity for nuclear technology, along with 11 other Chinese entities as alleged military companies.
Harry Clark, a Washington-based attorney at the Orrick law firm, said Washington’s ban would not only cover U.S. citizens and permanent residents, but also entities, such as funds, organized under U.S. law. Or based in the USA.
Alicia García-Herrero, chief economist for Asia Pacific at Natixis, said more clarity is needed on the sanctions.
“Basically, I don’t think we should be talking about full-blown financial decoupling, but I do think we see targeted financial decoupling,” he said. While it does not predict any major impacts in the short term, listing could affect a company’s ability to make acquisitions abroad, he added.
A more pressing question, according to her, is whether the sanctions will affect the subsidiaries of those Chinese companies. The answer is probably “yes,” he said, but “it needs to be developed.”
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