Investors look to Joe Biden as Donald Trump continues ‘sharp break’ from China

Jodi Xu Klein
·6-min read

US investors look to the Biden administration for guidance on Washington’s policy toward Chinese companies as President Donald Trump resorts to executive actions to solidify his hardline stance against Beijing in his final days.

Trump continued to turn to executive orders as his favoured way for new measures as the clock of his presidency runs down. Last week, the president signed his latest executive order to ban eight Chinese digital payment platforms including Alipay and WeChat Pay in the United States.

The ban will take effect after Trump is no longer the president, and will leave the implementation with the new Biden administration that could potentially cause disruption in the markets.

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An executive order is a way “to not show it to agencies or lawyers,” said Jim Lewis, head of technology and public policy at the Centre for Strategic and International Studies in Washington.

“His advisers are desperate to lock in a hard-line China policy. They no longer want decoupling but a sharp break – to break as many links as possible, with a focus on tech and finance,” said Lewis. “It’s not particularly coherent, but that’s a hallmark of this administration’s strategies.”

A financial decoupling, as many have argued, would have bigger damage on US investors than on Chinese companies.

But this administration is focused on displaying its tough stance toward China and the approach of an executive order is the fastest way to achieve it.

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Trump signed 207 such orders in the past four years, more than any of his three predecessors has done in their first term. Over time, he has increasingly relied on executive orders on China policies.

From July 14 to August 14, Trump signed four orders regarding Hong Kong, WeChat and TikTok. Little will change in the last days of his tenure.

A pedestrian walks past a China Telecom store in Shanghai, China last week. Photo: Bloomberg
A pedestrian walks past a China Telecom store in Shanghai, China last week. Photo: Bloomberg

“I believe it would be premature to assume there won’t be more actions against China by the Trump administration” because “some of these moves seem to be driven by individual actors,” said Andrew Bishop, global head of policy research at Signum Global Advisors, stressing these measures were often introduced in the interests of certain individuals such as Secretary of State Mike Pompeo or the president himself.

Such approach has already shown its ability to confuse markets.

In order to follow a vaguely worded November executive order Trump signed to ban US investors from 35 Chinese companies Washington deemed having ties with China’s military, the New York Stock Exchange made two reversals on its plan to delist three Chinese telecoms carriers because it was unclear, due to the lack of coordination among Treasury, State and Defence departments, whether the subsidiaries of the companies were affected by the rules.

The exchange’s flip-flops in its announcements to ban China Mobile, China Telecom and China Unicom (Hong Kong) from trading have sent shock waves in US capital markets, jerking the shares of these companies wildly up and down. The whirlwind week was damaging to investor confidence and the policy stability they rely on.

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Changes were made unilaterally also outside the financial markets. Pompeo this past weekend said he was lifting restrictions on how American officials may interact with their Taiwanese counterparts, calling the restrictions “null and void”.

One analyst pointed out that the administration’s ability to execute any new China policy is diminished as the president now may face an impeachment trial after his supporters attacked the US Capitol last week.

Since Wednesday, at least two cabinet members resigned and White House senior advisers quit en masse.

Among them was deputy national security adviser Matthew Pottinger, a key person in the West Wing that led many of the tough actions towards China, including initiatives to counter Chinese Communist Party’s efforts to influence US institutions in the tech sector and Wall Street.

The resignation of Pottinger “reduces the administration’s ability to formulate new policies quickly”, said Gabriel Wildau, analyst on China at consultancy Teneo.

But that could mean expedited methods such as issuing executive orders without needing to consult his advisers will become even more dominant in the final days.

Signum’s Bishop pointed out that “paradoxically, the fact that the president now has to be ‘on his best behaviour’ following last week’s incident at the Capitol may mean he focuses his last bits of attention on China rather than on more controversial domestic affairs”.

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In order to save time, the administration also simply added more Chinese companies to existing orders or blacklists as another fast way to double down on its policies.

Last Tuesday, the US weighed a ban on American investments in Alibaba and Tencent. Large Chinese oil and gas companies were also rumoured to be next in line after China National Offshore Oil Corp (CNOOC) was added to the blacklist of companies designated by the US government as linked to the Chinese military.

Trump’s November order took effect on Monday. Index providers MSCI, FTSE Russell and S&P Dow Jones Indices all announced they removed these Chinese telecoms companies from their indices late last week, leaving American investors, mutual funds and exchange traded funds (ETFs) that mirror the index holdings, little time to scramble to sell these investments to comply with US laws.

A display from Chinese telecommunications firm China Mobile at an expo in Beijing in October 2020. Photo: AP
A display from Chinese telecommunications firm China Mobile at an expo in Beijing in October 2020. Photo: AP

Krane Funds Advisors, a New York based firm investing primarily in China focused ETFs, had to sell about US$39 million in six ETFs that included securities of these firms, according to data compiled by Bloomberg.

Not only did Krane, managing a total of more than US$5 billion, said the fund would sell its holdings in funds mirroring the MSCI indices, it also sold affected investments in funds where the underlying indices – CSI and FastINDX – have not removed these companies, in a pre-emptive move.

Earlier this week, Goldman Sachs, JPMorgan and Morgan Stanley said in filings to the stock exchange of Hong Kong that they will delist 500 Hong Kong-listed structured products that are linked to these telecoms companies. These moves cut investors further from accessing these companies beyond the US capital markets.

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But some of the last-minute policies may be rolled back by the new administration.

For instance, “the outlook for success appears dim” for the new proposal to ban Chinese apps, said Teneo’s Wildau.

“US federal courts will almost certainly block implementation of the ban, which relies on the same legal authorities as the earlier bans,” Wildau said, referring to TikTok and WeChat.

Biden’s Justice Department could also withdraw the proposal or just let it wither in the legal process. “In any case, the latest attempted ban is unlikely ever to take effect,” said Wildau.

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