The decree passed in November prevents US investors from buying securities of Chinese companies supposedly under military control.
The administration of US President Donald Trump on Monday strengthened an executive order prohibiting US investors from purchasing securities of companies believed to be controlled by the Chinese military, following a disagreement between US agencies on how to strictly adhere to the directive.
The Treasury Ministry issued guidelines that the decree, released in November, would apply to investors in exchange-traded funds and index funds as well as subsidiaries of Chinese companies designated as owned or controlled by the Chinese military. .
The “frequently asked questions” or FAQs, posted on the Treasury website on Monday, came after the Reuters news agency and other news outlets reported that a debate was raging within the Trump administration on orientations. The State Department and the Defense Department had opposed a Treasury Department offer to water down the executive order, a source told Reuters.
Secretary of State Mike Pompeo said on Monday that the announcement “ensures that American capital does not contribute to the development and modernization of the military, intelligence and security services of the People’s Republic of China (PRC)”.
“This should allay fears that American investors may unknowingly support (Chinese military-controlled companies) through direct, indirect or other passive investments,” he added.
Specifically, some media have reported that the Treasury is seeking to exclude subsidiaries of Chinese companies from the scope of the White House directive, which prohibits new purchases of securities of 35 Chinese companies which Washington says are backed by the Chinese army, from November. 2021.
‘A clear victory’
The directives published Monday specify that the bans apply to “any subsidiary of a Chinese Communist military company, after that subsidiary is listed on the stock exchange by the Treasury.” He added that the agency “intends to list” publicly traded entities that are 50% or more owned or controlled by a Chinese military company.
“The FAQ published by the Treasury represents a clear victory for the US security community in its determined efforts to preserve strong financial market sanctions associated with [the executive order] – the first of its kind, ”said Roger Robinson, a former White House official who supports limiting Chinese access to US investors.
The November decree was intended to give teeth to a 1999 law that required the Defense Ministry to compile a list of Chinese military companies. The Pentagon, which only complied with the mandate this year, has so far nominated 35 companies, including oil company CNOOC Ltd and China’s top chipmaker Semiconductor Manufacturing International Corp.
Since the November order, index providers have already started excluding some of the named companies from their indexes.