Reuters reports that China's largest energy company, CNOOC, and its largest chipmaker, SMIC. In reaction, their share prices declined significantly:
The Department of Defense (DOD) is poised to designate four more Chinese companies as owned or controlled by the Chinese military, bringing the total number to 35. A recent executive order issued by President Donald Trump would prevent U.S. investors from buying securities of the blacklisted firms starting late next year.
It was not immediately clear when the new additions to the blacklist would be published in the Federal Register, making the move official. But the list includes China Construction Technology Co Ltd and China International Engineering Consulting Corp, as well as Semiconductor Manufacturing International Corp (SMIC) and China National Offshore Oil Corp (CNOOC), according to the document seen by Reuters and four sources.
SMIC said it continued “to engage constructively and openly with the U.S. government” and that its products and services were solely for civilian and commercial use. “The Company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses,” it said in a statement. Shares in SMIC closed 2.7% lower on Monday.
CNOOC’s listed unit CNOOC Ltd, whose shares fell by almost 14% on Monday, said in a statement that it had checked with its parent and no formal notice from relevant U.S. authorities had been received.
What is the practical implication of this move, though? As mentioned, Biden will probably roll things back to try and bring the temperature down in Sino-US relations. What's more, some US fund managers may have to divest their holdings in these large PRC SOEs:
This month, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by prohibiting U.S. investors from buying securities of the blacklisted companies from November 2021.
The directive is unlikely to deal the firms a serious blow, experts said, due to its limited scope, uncertainty about the stance of the Biden administration and already-scant holdings by U.S. funds.
Still, top U.S. asset managers Vanguard Group and BlackRock Inc each own about 1% of shares of CNOOC’s listed unit CNOOC Ltd, and together own roughly 4% of outstanding shares of SMIC, disclosures show.
Like Trump's other scorched earth measures, the intent is not only meant to irreparably harm relations such that Biden's team can't fix them but to also show action on anti-China rhetoric. Unfortunately, Trump remains a political force Stateside, and he will be able to point to actions like this in the future should he choose to run again or endorse allies or relatives running for office.
