President Donald Trump’s November executive order banning U.S. investments in companies linked to the Chinese military will now also apply to subsidiaries, a move intended to protect U.S. investors from a “national security threat.”
According to a statement from Secretary of State Mike Pompeo on Monday, the Treasury Department noted Monday that Trump’s Executive Order bars the ownership of any Communist Chinese military companies (CCMCs) shares by exchange-traded funds (ETFs) and index funds, in addition to any of their 50 percent or greater majority-owned subsidiaries that have been publicly listed by the Treasury or Defense Departments.
The crackdown is part of an effort to ensure U.S. capital does not fund the People’s Republic of China’s military, intelligence and security services.
“President Trump took decisive action last month to protect American investors and pension holders from funding Communist Chinese military companies (CCMCs) through Executive Order (13959) Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies,” the statement read. “The Trump Administration is coordinating closely to counter the threat these companies present to the economy and national security of the United States.”
All transactions by U.S. persons fall under the terms of Trump’s Executive Order, including individuals, institutional investors, pension funds, university endowments, banks, bond issuers, venture capital firms, private equity firms, index firms, and other U.S. entities, including those operating overseas.
“Beginning on January 11, 2021, U.S. investors will no longer be able to transact in publicly traded or private market debt or equity securities, or any securities that are derivative thereof, regardless of the percentage ownership of CCMCs, with full divestment required by November 11, 2021,” the statement said.
In last month’s Executive Order, President Trump accused the People’s Republic of China (PRC) of exploiting the United States’ economy in order to enable the development and modernization of the communist country’s military and intelligence, posing a direct threat to the U.S. citizens at home and abroad.
Trump said the PRC is “developing and deploying weapons of mass destruction, advanced conventional weapons, and malicious cyber-enabled actions against the United States and its people.”
Trump went on to say that civilian Chinese companies, while purportedly private and civilian, are compelled to support the PRC’s military and intelligence activities.
“At the same time, those companies raise capital by selling securities to U.S. investors that trade on public exchanges both here and abroad, lobbying United States index providers and funds to include these securities in market offerings, and engaging in other acts to ensure access to United States capital,” Trump said in the Executive Order. “In that way, the PRC exploits United States investors to finance the development and modernization of its military.”