U.S. Ban of Chinese Firms Takes Effect

The Trump administration is just a few days from its end, but the tensions between the U.S. and China is far from over.

In the first week of 2021, news arose that Washington was considering adding tech giants Alibaba and Tencent – the two most valuable companies in Asia – to a list of Chinese companies allegedly owned or controlled by the Chinese military.

On November 12, President Donald Trump signed an executive order banning U.S. investment in more than 30 Chinese companies that it said have ties to the People’s Liberation Army. 

The firms, including China’s biggest chipmaker and energy, aviation, transportation, and technology companies, were considered a threat to U.S. national security.

On Monday (Jan 11), the ban took effect, prohibiting any American citizens or funds from making new investments in companies from the list.

So far, Alibaba and Tencent were not included directly in the blacklist. Still, to comply with the executive order, Nyse (New York Stock Exchange) delisted three Chinese telecommunication giants last week: China Mobile, China Telecom, and China Unicom. 

Consequently, their ADRs (American Depositary Receipts) stopped trading in the U.S. market on Monday.

The executive order also banned transactions with eight Chinese payment apps, including Alipay, from Alibaba’s affiliate Ant Group, and Tencent’s digital wallets WeChat and QQ Wallet.

Other companies can also be delisted in the future because of another executive order. On December 18, Trump signed legislation that can delist foreign companies of U.S. exchanges unless American regulators can review their financial audits. While it applies to any foreign company, experts have said the goal was to target China.

Rob Booker has been researching China for many months and was sending alerts about the risk of Chinese firms being delisted from U.S. exchanges.

You can watch a video here of him discussing this topic.

Following the new rules, big U.S. banks like Goldman Sachs, JPMorgan, and Morgan Stanley have stopped offering hundreds of derivatives products in Hong Kong.

Recently, Goldman Sachs estimated that U.S. investors hold about $1 trillion in Chinese stocks and ADRs from companies that can be affected in case Alibaba and Tencent are also delisted.

To fight back against the U.S. sanctions, Beijing issued new rules over the weekend to allow Chinese courts to punish global companies for complying with foreign sanctions.

In theory, companies from other countries would have to pick a side, China or the U.S. It’s not clear yet, though, how this would be implemented.

China says the U.S. sanctions are an abuse of power and suppress foreign firms.

While U.S.-China trade didn’t start under Trump, he intensified them with unprecedented measures.

President-elect Joe Biden could reverse the ban, but experts believe this will not happen; otherwise, the U.S. government could appear weak at this point.

The uncertainties between the two biggest economies in the world affect virtually companies of all sizes and from all sectors, with hundreds of billions of dollars involved.

According to Rhodium Group data, despite Trump’s measures, U.S. direct investment into China increased slightly from $12.9 billion in 2016 to $13.3 billion in 2019.