By Bradley Blankenship
ON December 10, the S&P Dow Jones Indices removed some Chinese companies from its index products after an executive order from the administration of U.S. President Donald Trump issued in November. They are now the second major index to do so after FTSE Russell. Given China is the second largest economy in the world, and also the fastest growing major economy, barring “U.S. persons” from investing in Chinese companies is simply ridiculous.
The executive order by the Trump administration targets Chinese companies identified by the Department of Defense (DoD) as being connected to the Chinese military. It disallows investment firms, pension funds and others from buying securities from these companies. However, no serious evidence has been provided to designate these companies as “Chinese military companies,” and it’s clear that it is targeted against highly competitive Chinese companies. It raises the question of where things go from here. What other Chinese companies will be targeted out of “national security” concerns? The U.S. apparently has no problem breaking the international rules based system to benefit its own companies, so nothing should be assumed to be off the table.
And also, what action could China retaliate with? After all, there is a laundry list of American companies operating in China with open links to the U.S. military, such as Boeing, Caterpillar, General Motors, Ford, Apple, Amazon, Micron Technology, Qualcomm and many more. It is not likely that the incoming administration of President-elect Joe Biden will reverse course on this matter. Companies tend to follow these executive orders on their own accord before having to wrestle with the federal government, saving a massive headache and possible legal action. By removing these companies already before the order goes into effect, passive investors will be shut out from investing in these companies before active investors ultimately follow.
Politically, Biden has been cornered by this series of provocations by the Trump administration and would appear as a collaborator with China if he were to lift some executive action. The wave of attacks against Chinese companies has been accompanied by a towering public opinion campaign meant to damage China’s public image to the American people. Furthermore, the U.S. Congress, despite how polarized and deadlocked it always is, continues to agree on anti-China legislation. The Democrat-controlled House of Representatives unanimously passed through a law last week to boot Chinese companies off U.S. stock exchanges if they fail to comply with auditing rules in the United States. The prospects of this course being reversed are slight, but the Biden administration must think carefully.
– The Daily Mail-CGTN
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