Trump Administration Toughens Ban on Investment in Chinese Military Companies

WASHINGTON—The Treasury Department on Dec. 28 released guidance for investors about the president’s new executive order that bans investment in companies with ties to the Chinese military. The guidelines clarify that the ban will include subsidiaries of all Chinese firms in the Pentagon’s blacklist, handing a clear win to national security advocates.

December 29, 2020

The notice came after a conflict reportedly broke out within the administration over how to implement the new order. The Pentagon and the State Department, according to media reports, had objected to Treasury Secretary Steven Mnuchin’s effort to soften the executive order by excluding subsidiaries from the ban list.

Both Mnuchin and State Secretary Mike Pompeo on Twitter denied reports that there was a clash over the issue.

Treasury released a “Frequently Asked Questions” notice that outlined further details for President Donald Trump’s November executive order. The notice said that the prohibitions would “apply to any subsidiary of a Communist Chinese military company.”

The department added that it intends to list publicly traded subsidiaries that are “50 percent or more owned” or “determined to be controlled” by the Chinese military companies identified in the executive order.

In addition, the Secretary of Defense, in consultation with the Secretary of the Treasury, can list an entity if it determines “that an entity, including a subsidiary, is a Communist Chinese military company.”

According to the guidelines, exchange-traded funds (ETFs) and index funds will be subject to the investment ban. The Epoch Times earlier reported that Treasury had sought to exclude ETFs, another area of disagreement among agencies.

The notice now clarifies that leading passive managers such as BlackRock and Vanguard will be forced to divest blacklisted companies.

Securities of many Chinese companies are embedded in ETFs and other passive investment funds benchmarked against major indexes such as MSCI and FTSE. Billions of U.S. investment dollars have been flowing into Chinese companies and indirectly financing the Chinese regime through these index funds.

Pompeo on Dec. 29 welcomed Treasury’s announcement on Twitter, hailing the expansion of the investment prohibition.

“President @realDonaldTrump is protecting U.S. investors and pension funds,” he wrote. “His Executive Order prohibits ETF and index fund investments in Communist Chinese military companies and subsidiaries. Great teamwork on today’s announcement.”

MSCI Emerging Market index included 19 PLA companies and 53 subsidiaries, according to a Twitter post by Keith Krach, under secretary of state for economic growth, energy, and the environment.

The executive order, Krach said on Twitter, “prohibits ETFs, mutual funds & index funds, like MSCI, FTSE, Bloombe…

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