Trump bans US investments in firms with 'ties to China military'

Washington, DC

US PRESIDENT Donald Trump signed an order barring American investments in Chinese firms owned or controlled by the military, the latest White House bid to pressure Beijing over what it views as abusive business practices.

China is "increasingly exploiting" American capital for "the development and modernisation of its military, intelligence, and other security apparatuses," posing a threat to the US, according to the executive order signed Thursday. The order prohibits investment firms and pension funds from buying and selling shares of 20 Chinese companies designated by the Pentagon as having military ties in June, as well as an additional 11 companies added in August.

The Chinese Foreign Ministry on Friday accused the US of "viciously slandering" its military-civilian integration policies and vowed to protect the country's companies. "This not only severely harms the legitimate rights and interests of Chinese companies, but also the interests of foreign investors including US ones," ministry spokesman Wang Wenbin told a regular briefing, urging the order's withdrawal.

Relations between the US and China are expected to remain rocky despite Mr Trump's defeat to Democrat Joe Biden in the presidential election last week. The Trump administration has continued to follow through on vows to punish Beijing over the coronavirus pandemic, its treatment of Muslim minorities and the crackdown on dissent in Hong Kong.

On Friday, China also officially extended congratulations to Mr Biden on his election victory. Beijing had been one of the last holdouts as Mr Trump mounted an unlikely battle to contest the results.

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Shares of top Chinese firms - including China Mobile Ltd and China Telecom Corp Ltd - tumbled. China Mobile, whose controlling shareholder China Mobile Communications Group is on the list, dropped 5 per cent in Hong Kong, the biggest intraday loss in almost eight months. China Telecom slumped 7.8 per cent, its biggest drop in 12 years.

Chinese officials have threatened to respond to previous Trump administration actions with their own blacklist of US companies. Dongshu Liu, an associate professor of Chinese politics at the City University of Hong Kong, said Beijing would likely shrug off such "symbolic" provocations while it waits to see what kind of policy the Biden administration will put into place.

"For those who are clearly owned by the military, they don't have a lot to do with the US," Prof Liu said.

"China is waiting for Trump to step down. It will avoid being too sensitive - be calm and don't overreact - to any of Trump's actions towards China as his term winds down."

The latest prohibition will go into effect on Jan 11, and allows US investment firms and pension funds to divest their holdings in companies linked to the Chinese military over the next year. If the US determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.

US National Security Advisor Robert O'Brien said in a statement that many of the companies at issue were traded on exchanges around the world. American investors could unknowingly provide funds through passive investments such as mutual funds and retirement plans, he added.

The order "serves to protect American investors from unintentionally providing capital that goes to enhancing the capabilities of the People's Liberation Army and People's Republic of China intelligence services," Mr O'Brien said.

In a move earlier this year to restrict the flow of money, the administration sent a letter to Michael Kennedy, then chairman of the Federal Retirement Thrift Investment Board, telling him to "halt all steps" associated with putting government employees' savings in a fund that includes stakes in Chinese companies.

Separately, Mr O'Brien said on Wednesday that China's latest clampdown in Hong Kong showed that the "one country, two systems" arrangement designed to ensure the city's autonomy amounted to a "fig leaf" for dictatorship, and signalled new sanctions.

The warning came after China's top legislative body on Wednesday passed a resolution allowing for the disqualification of any Hong Kong lawmakers who were not deemed sufficiently loyal. Chief Executive Carrie Lam's government immediately banished four legislators, prompting the remaining 15 in the 70-seat Legislative Council to resign en masse hours later.

While the US has imposed sanctions against Ms Lam and some officials in Beijing, it has so far held off punishing the country's senior hierarchy. Such a move would infuriate Beijing and accelerate a deterioration in relations between the two nations on a variety of issues. BLOOMBERG