In 1999, a law was passed that required the Pentagon to compile a list of companies affiliated with the Chinese military. The Pentagon has only last year begun complying with the mandate, 21 years after the law was passed.
By December 2020, 35 Chinese companies were added to the list, including chipmaker Semiconductor Manufacturing International Corp and energy conglomerate CNOOC Ltd. On Jan. 14, the Pentagon added nine more companies to the list, bringing the total number to 44. Newly added companies include Commercial Aircraft Corporation of China, GOWIN Semiconductor, Xiaomi, and Advanced Micro-Fabrication Equipment (AMEC).
By Nov. 11, 2021, U.S. investors are expected to divest all holdings in these companies. A press release from the Department of Defense states: “The Department is determined to highlight and counter the People’s Republic of China’s (PRC) Military-Civil Fusion development strategy, which supports the modernization goals of the People’s Liberation Army (PLA) by ensuring its access to advanced technologies and expertise acquired and developed by even those PRC companies, universities, and research programs that appear to be civilian entities.”
In November, an analysis of companies in the Pentagon list had revealed that a shocking amount of American money was invested in these businesses. For instance, China Mobile had $8.1 billion worth of investments from American individuals and entities. Similarly, China Telecom Corp. had American investments worth $2.3 billion.
Surveillance equipment manufacturer Hikvision, which is accused of being a participant in the digital surveillance and persecution of the Uyghur minority in Xinjiang, was noted as having $1.7 billion in investments from America. With Trump’s executive order, all the investments will be liquidated by U.S. investors and these companies will not be able to raise any more capital from American markets in the future.
President Donald Trump has signed an amendment order that further cuts off Chinese access to American capital. The amendment was made to Trump’s November Executive Order 13959, according to which, U.S. investors are required to cease investments in companies classified by the Pentagon as being owned by the Chinese military.
“Any transaction entered into on or before 11:59 p.m. eastern standard time on November 11, 2021, solely to divest, in whole or in part, from securities that any United States person held as of 9:30 a.m. eastern standard time on January 11, 2021, in a Communist Chinese military company… is permitted. Effective at 11:59 p.m. eastern standard time on November 11, 2021, possession of any such securities by a United States person is prohibited,” the amendment order states.
The order allows the Secretary of Defense to list whether a company is categorized as a Chinese military company. Once the Pentagon categorizes a business to be a People’s Liberation Army (PLA) affiliated company, Americans are expected to get rid of their securities in the firm within one year.
E.O. 13959 states that Beijing is pursuing an aggressive military-civil fusion strategy. Chinese companies linked to the PLA aid in the development of the national military, thus putting American interests and security at risk. In December, the U.S. Treasury Department released an order stating that Washington will also prohibit index funds and exchange traded funds (ETFs) from funding Chinese military firms and all subsidiaries under control of the PLA.