The U.S. added firms to a new, bulked up Chinese military-industrial complex companies list
By Samuel Rubenfeld and Edmund Xu
Friday, June 4, 2021
President Joseph R. Biden issued an executive order Thursday that expanded restrictions on U.S. investments in companies linked to the Chinese military or the surveillance sector.
The executive order, which takes effect Aug. 2, prohibits U.S. companies or individuals from engaging in the sale or purchase of publicly traded securities from firms added to a new list of Chinese military-industrial complex companies, according to a White House fact sheet. It widens restrictions announced in November by the Trump administration, including by adding a finding that the use of Chinese surveillance technology abroad, as well as the use of Chinese surveillance technology to facilitate repression, constitute “unusual and extraordinary threats.”
Wang Wenbin, a spokesman for the Chinese foreign ministry, urged the U.S. during a daily briefing on Friday to revoke the order and “to respect market laws and principles and provide a fair, just and non-discriminatory business and investment environment for Chinese enterprises.”
The action: Fifty-nine companies were named in an annex to the new executive order, and the U.S. Treasury Department has the authority to add any company found to operate in the Chinese defense or surveillance tech sectors, as well as any entities they own or control.
Under the Trump-era order, the authority to name Chinese firms had lied with the Defense Department, which on Thursday produced its own, separate list of Chinese military companies operating in the U.S., as required by a defense authorization law.
The list attached to the new executive order replaces and supersedes the old one in its entirety, according to the Treasury. Some companies named in the previous list were not included in the new list, including smartphone maker Xiaomi Corp., which had successfully sued for its removal. Luokung Technology Corp., which had also filed a lawsuit after its inclusion in the prior list, wasn’t named in the annex.
Only entities “whose names exactly match the names” on the Treasury’s list are subject to the executive order’s prohibitions, the department said in guidance issued Thursday. As with the prior order, the investment prohibitions don’t apply to subsidiaries unless they are themselves listed, the Treasury said in additional guidance. The Treasury’s 50 Percent Rule, under which majority owned assets of sanctioned parties are automatically blocked, also doesn’t apply.
In addition, Americans are allowed to provide investment advisory, management or similar services to a foreigner seeking to buy or sell securities of a listed company, provided that the underlying transaction wouldn’t violate the executive order, according to the Treasury’s guidance. Americans working for foreign entities can buy or sell securities involving the listed companies, so long as it “is in the ordinary course of their employment,” the guidance said.
The bigger picture: The executive order does not impose export controls, but firms were named in the annex specifically due to their involvement in China’s military or surveillance industry and may face scrutiny from American exporters. Several of the listed companies are already subject to export restrictions imposed by the U.S. Commerce Department, however.
Network equipment giant Huawei Technologies Co. Ltd., which is also criminally charged in the U.S. for allegedly violating sanctions, is on the Commerce Department’s export restrictions list, along with more than 100 of its affiliates. Proven Glory Capital Limited and Proven Honour Capital Limited, also listed in the annex, are both dollar-bond issuers for Huawei, according to a report by the South China Morning Post.
Surveillance firm Hangzhou Hikvision Digital Technology Co. Ltd. was added to the Commerce Department’s list in 2019 following widespread reports it had supplied equipment to police agencies in Xinjiang, where the Chinese government is engaged in human rights abuses. Chinese firms were using U.S. technology in the Xinjiang surveillance network, Kharon reported last year.
Semiconductor Manufacturing International Corporation (SMIC), China’s largest maker of semiconductor chips, was added in late 2020 to the Commerce Department’s export controls list over evidence concerning its relationship with China’s military-industrial complex.
And China Communications Construction Company (CCCC) and China National Offshore Oil Corporation (CNOOC), both in the executive order’s annex, were listed by the Commerce Department for their roles in Chinese development in the South China Sea.
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