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The US Treasury has blocked an attempt by the Pentagon and the State Department to blacklist some of China’s biggest tech companies that would have banned US investors from owning their shares.
The Pentagon and the State Department had gone to great lengths to add Alibaba, Tencent and Baidu to a list of Chinese companies which the Defense Department said have ties to the Chinese military.
But according to three people familiar with the situation, Steven Mnuchin, the Secretary of the Treasury, won a fight between him and Mike Pompeo, the hawkish Secretary of State, and Chris Miller, the Secretary of Defense.
President Donald Trump signed an executive order in November banning Americans from investing in Chinese companies linked to the People’s Liberation Army. His administration later clarified that the banned targets would be taken from a list of Chinese groups with links to the PLA that the Pentagon was required to produce by Congress.
In the last few weeks of the Trump administration, Chinese hawks had hoped to add Alibaba, the Chinese e-commerce giant, and Tencent, the tech company that owns the WeChat messaging app, to the Pentagon’s list. They also wanted to include Baidu, the Chinese Internet search engine.
While the push was in part a continuation of an effort to take a tougher security stance on China, some officials wanted to take action that would have been difficult for Joe Biden to undo after he was became president. The new administration faces bipartisan pressure in Congress to make the United States tougher on Beijing.
After a meeting between Mr Mnuchin, Mr Pompeo and a senior Pentagon official earlier this week, the Chinese hawks believed they had won. But Mr Mnuchin managed to change the outcome, suggesting he convinced Mr Trump to back his position. The Treasury Secretary had argued that putting Alibaba on the list would have been a huge problem for U.S. investors.
“Removing the ‘Big 3’ from the Pentagon’s list of Chinese PLA-related companies risks sending the message that worry about the potential losses of US investors supersedes the protection of vital US national security interests,” said Roger Robinson, former head of the US National Security Council.
“Having said that, the general use of very effective capital market sanctions against these Chinese PLA-affiliated companies is now established.”
A person familiar with the internal debate said Mr Mnuchin benefited from the recent departure of Matt Pottinger, the Chinese hawk who served as deputy national security adviser. Mr Pottinger resigned last week to protest the way Mr Trump reacted to the Capitol Hill storm that resulted in the deaths of five people. Over the past four years, Mr. Pottinger has been the main architect of many more stringent security policies in China.
Mr Mnuchin’s victory comes a month after suffering defeat in a similar battle against China. The Treasury had tried to block an effort to blacklist subsidiaries of Chinese companies already on the Pentagon’s list. But he lost that fight to opposition from Mr. Pompeo and others.
The Treasury issued several guidelines last week as it sought to confusion on how companies should adhere to the decree, which had sparked conflicting messages from the New York Stock Exchange about the possibility of delisting certain Chinese companies. The Treasury eventually named several US subsidiaries of Chinese companies explicitly targeted by the sanctions.
While Mr. Mnuchin succeeded in preventing the Pentagon from adding Alibaba and other high-level companies to the blacklist, the Trump administration continued to pursue an aggressive policy to counter the strategy of “military-civilian fusion” of Beijing.
Because Beijing may force Chinese companies to share technology with the PLA, Chinese administration hawks argued that the strategy means American investors who invest in Chinese companies effectively help the Asian country and undermine national security American.
Another person familiar with internal discussions within the administration said supporters of the Alibaba addition argued that the recent Chinese government repression on the e-commerce group, and speculation about the fate of its founder Jack Ma, had pointed out that large Chinese private companies were not immune to pressure from the Chinese Communist Party.
The NSC, the State Department and the Treasury declined to comment.
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