In November, President Trump passed Executive Order 13959 that blocks American pension holders and companies from funding Communist Chinese Military Companies (CCMC). The Treasury Department recently tightened the ban through which Washington will prohibit index funds and ETFs from financing CCMCs and any subsidiaries controlled or owned by the Chinese military. Secretary of State Mike Pompeo stated that the prohibition will ensure American capital does not contribute to the development of the communist Chinese military.
According to the Treasury, the executive order applies to any CCMC subsidiary that is publicly listed by the department. Any entity that issues publicly traded securities that are 50 percent or more owned by CCMCs or are known to be under the control of CCMCs will be publicly listed as subsidiaries subject to executive order 13959. Moreover, the Secretary of Defense has the power to classify any entity as a CCMC. The Office of Foreign Assets Control (OFAC) department of the Treasury has published a list of entities that are currently identified as CCMCs.
“The Executive Order applies to all transactions by U.S. persons, 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. This should allay concerns that U.S. investors might unknowingly support CCMCs via direct, indirect, or other passive investments,” Pompeo stated. He added that American investors will not be able to transact debt, equity, or other derivatives of a CCMC starting Jan. 1, 2021.
American investors are pouring money into Chinese Communist Party-financed companies
In December, the State Department issued a fact sheet detailing how American investors are pouring money into companies backed by the Chinese Communist Party (CCP) and the People’s Liberation Army (PLA). They do it through major index funds like the FTSE and MSCI. These indices often have Chinese companies that the Department of Commerce and Pentagon have blacklisted. Just this year, the Defense Department blacklisted 31 Chinese firms.
“As of June 2020, at least 22 of the 31 parent-level PRC military companies had affiliates’ securities included on a major securities index, including at least 68 distinct affiliate-level securities issuers; at least 13 PRC firms on the Entity List had affiliates or parent companies included in the MSCI or FTSE stock indices; and the MSCI emerging market index included 230 A-shares Chinese stocks incorporated on the mainland, quoted in renminbi, and listed on Chinese Communist Party-controlled Shanghai and Shenzhen exchanges,” the fact sheet states.
Roger Robinson, a former senior national security official, said the act of limiting Chinese access to American capital is one of the most powerful non-military tools to counter the CCP. He also wants the Chinese companies on the Entity List to be included on the Pentagon list that includes companies blacklisted by the Department of Commerce. Currently, the companies on the Entity List are restricted from procuring U.S. technology, components, and equipment. However, they still have access to America’s capital markets.
Christopher Iacovella, CEO of the American Securities Association, believes that the bureaucracy of the Treasury and the SEC are restricting the United State’s ability to respond quickly to the communist Chinese threat. He feels that every CCP-controlled company must immediately be expelled from the American markets. Ever since executive order 13959 was passed in November, indices have begun removing some of the CCP-backed companies. Senator Marco Rubio congratulated President Trump for passing the executive order. He emphasized that the U.S. government should never put the interests of the CCP and Wall Street above that of American investors.