Trump bans US investments in what he calls Chinese ‘military-controlled’ companies, sending Hong Kong, China markets lower

Martin Choi
·5-min read

Donald Trump upped the ante in his conflict with China even as he refused to concede the presidential election 10 days ago, with an overnight executive order banning American investments in companies with suspected ties to the “Communist Chinese military.”

The executive order, Trump’s first policy action since the November 3 presidential election, would ban investments in 31 companies including China Mobile and China Telecom, from a list of 20 names compiled in June and a list of 11 Chinese entities highlighted in August. The order takes effect from January 11 next year, nine days before the inauguration of president-elect Joe Biden, and US investors holding the stocks will be given a grace period until November 11, 2021 to sell them.

The move, while largely symbolic, weighed on the stock markets of Hong Kong and China, highlighting the potential havoc that Trump can still wreak on global markets and economies, using the executive actions available to the world’s most powerful office in the remaining 10 weeks of his presidency. Hong Kong’s benchmark index fell for the third straight day, with similar declines in the main gauges on the Shanghai and Shenzhen markets.

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The president “may be tempted to flip over the chess board and leave Biden to pick up the pieces,” said Gabriel Wildau at Teneo Risk Advisory in New York. “The outgoing administration may also be seeking to place Biden in a bind by imposing actions that create chaos but that would be politically difficult for a Biden administration to reverse, since doing so would expose them to criticism that they are soft on China.”

“The People’s Republic of China (PRC) is increasingly exploiting United States capital to resource and to enable the development and modernisation of its military, intelligence, and other security apparatuses,” Trump said in a statement.

The list comprises Chinese companies that are mostly state-owned and non-tradeable on any exchange. Huawei Technologies, the employee-owned telecommunications infrastructure builder is also on the list, next to China Telecom and China Mobile the listed phone networks. China Railway Construction Corporation the state-owned building company and Hangzhou Hikvision Digital Technology the maker of surveillance cameras are also on the list.

Shares of China Telecom fell heavily in Hong Kong on Friday. Photo: Reuters
Shares of China Telecom fell heavily in Hong Kong on Friday. Photo: Reuters

“Investors are worried about whether Trump will follow up with further measures that would heighten US-China tensions before his term ends,” said Emperor Securities’ research director Stanley Chan, adding that the executive order hurt market sentiments. “Although Trump is nearing the end of his tenure, barring unforeseen consequences, risks remain as to what could happen in the coming two months. We’ll have to see if there are any changes to the executive order once Biden becomes president .”

Trump’s move to cut off US capital from the Chinese companies pommelled the telecommunications sector. China Telecom plunged 7.8 per cent, leading losses among blue chips. China Mobile lost 5 per cent, while China Unicom - among the 11 companies Trump banned in August - fell 6.6 per cent.

State-owned construction companies also fell. China Railway Construction Corporation eased 4.1 per cent, while China Communications Construction Company declined 3.3 per cent. Hikvision fell 1.5 per cent on the Shenzhen exchange.

The Hang Seng Index fell as much as 1 per cent before ending the day with a 0.1 per cent decline to 26,156.86 on Friday for its third consecutive day of declines.

The Shanghai Composite Index’s losses continued for a fourth day, dropping 0.9 per cent to 3,310.10 for a weekly loss of 0.1 per cent.

Wang Chen, a Shanghai-based partner at Xufunds Investment Management, said the stocks were only exposed to the risk of being liquidated by some funds.

“When selling is over, investors will realise that the fundamentals of these companies are not going to be hurt. It’s just a matter of liquidity issue and the impact will be quite limited,” Wang said.

The Hang Seng Tech Index of 30 top technology companies ended the week strongly, rising 3 per cent. Chinese technology trio Alibaba Group Holding, Tencent Holding and Meituan continued to rebound after China released a draft antitrust guideline to rein in internet-platform companies from monopolistic practices on Tuesday, wiping off US$254 billion in their market value in two days.

Alibaba, the owner of this newspaper, rose 1.6 per cent to HK$257, while Meituan gained 6.6 per cent to HK$305.80.

Tencent rose after posting better-than-expected profit in the third quarter. Photo: Reuters
Tencent rose after posting better-than-expected profit in the third quarter. Photo: Reuters

Benchmark heavyweight Tencent added 4.3 per cent to HK$602. The internet giant reported a better-than-expected 89 per cent jump in net profit for the third quarter.

Rising coronavirus infections and fears of new economic restrictions cast a pall on markets in Asia-Pacific.

Japan’s Nikkei 225 declined 0.5 per cent as new Covid-19 infections rose to record highs in the country, while Australia’s S&P/ASX200 retreated 0.2 per cent.

“Investors could not shake the sentiment-crushing aspects of the continually soaring Covid-19 cases and the unpleasantries of new economic restrictions,” said Stephen Innes, chief global markets strategist at Axi.

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