Trump Strengthens Ban on US Investments in Chinese Military Companies

President Donald Trump exits the White House to walk toward Marine One on the South Lawn in Washington on Jan. 12, 2021. Drew Angerer/Getty Images

President Donald Trump signed an order late Wednesday requiring U.S. investors to completely divest their holdings of securities of Pentagon-blacklisted Chinese military companies by Nov. 11, 2021.

The amendment order expands the scope of the initial November executive order (E.O.) 13959, which initially only restricted U.S. investors from buying securities of companies designated by the Pentagon as owned or controlled by the Chinese military by Nov, 11, 2021.

“[A]ny transaction entered into on or before 11:59 p.m. eastern standard time on November 11, 2021, solely to divest, in whole or in part, from securities that any United States person held as of 9:30 a.m. eastern standard time on January 11, 2021, in a Communist Chinese military company ... is permitted. Effective at 11:59 p.m. eastern standard time on November 11, 2021, possession of any such securities by a United States person is prohibited,” the order reads.

The amendments also prohibit possession of any securities that are owned or controlled by any Pentagon-designated communist Chinese military company one year after a company is determined to be as such.

The amendments also allow the Secretary of Defense “publicly to list whether a company is a Communist Chinese military company using the criteria in section 1237(b)(4)(B) of Public Law 105-261, as amended by section 1233 of Public Law 106-398 and section 1222 of Public Law 108‑375, regardless of whether the Secretary must report that determination under section 1237(b)(2),” Trump wrote in a letter to House Speaker Nancy Pelosi (D-Calif.) and Vice President Mike Pence.

The executive order Trump issued in November (pdf) sought to boost a 1999 law that mandated the Pentagon to compile a list of Chinese military companies. The Pentagon, which began complying with the mandate in 2020, has so far designated 35 companies as Chinese military companies operating directly or indirectly in the United States, including those owned or controlled by the People’s Liberation Army (PLA). Among those listed as such are oil company CNOOC Ltd. and China’s top chipmaker, Semiconductor Manufacturing International Corp.

The Chinese Embassy in Washington did not immediately respond to a request for comment when reached by Reuters.

Earlier on Wednesday, news outlets reported that Chinese tech giants Alibaba, Baidu, and Tencent have so far been spared from being put on the list.

In late December 2020, the Treasury Department released a notice regarding the November executive order that said that the Trump administration would prohibit exchange-traded funds (ETFs) and index funds from financing communist Chinese military companies and any subsidiaries that are owned or controlled by the Chinese military.

“[The prohibition] ensures U.S. capital does not contribute to the development and modernization of the People’s Republic of China’s (PRC) military, intelligence, and security services,” Secretary of State Mike Pompeo said in a statement at the time.

The Chinese Communist Party (CCP), through its aggressive national strategy called “Military-Civil Fusion,” uses Chinese companies to strengthen the PLA, Trump’s November executive order states.

The November executive order also noted that the Chinese companies, “though remaining ostensibly private and civilian, directly support the PRC’s military, intelligence, and security apparatuses and aid in their development and modernization.”

It adds, “At the same time, those companies raise capital by selling securities to United States investors that trade on public exchanges both here and abroad, lobbying United States index providers and funds to include these securities in market offerings, and engaging in other acts to ensure access to United States capital.”

“In that way, the PRC exploits United States investors to finance the development and modernization of its military,” the president warned.

Reuters contributed to this report.