Chinese Stocks Hit After Biden Said To Keep Trump’s Investment Ban

For the past few months, one of the reasons why investors had bid up some of the Chinese mega caps is the hope that Joe Biden would undo some of the various investment bans rolled out by the Trump administration as part of ongoing trade war between the US and China. Well, that particular thesis just got hammered after a Bloomberg report that despite Biden’s (both Joe and Hunter) notoriously close ties to Beijing, his administration is “likely to maintain pressure on China by preserving limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump” bucking attempts from Wall Street to ease the restrictions.

Bloomberg cited “six people familiar with the matter said” although discussions on Trump’s investment bans targeting companies linked to China’s military, which included three of the country’s biggest telecommunications firms, are still ongoing and no decision has been made.

Biden, who has been trying to restore some of the ties that had gotten frayed during the previous admin but without appearing appeasing, has been navigating a fraught relationship with Beijing, as tensions flare over issues ranging from trade to human rights to military postures in the South China Sea.

The investment blacklist, which Trump announced in November when he issued a ban on US purchases or sales of securities in Chinese firms with links to China’s military, touched off a new conflict, prompting China to threaten possible legal action against global firms that followed the U.S. ban. In January, Trump amended the order so that it banned altogether any Americans from holding securities of blacklisted Chinese firms from November 11th, 2021, rather than just additional purchases.

Some of the biggest losers from Trump’s executive order have been Wall Street firms, who have urged Biden to completely roll back the investment ban, Bloomberg reported citing four people in the industry.

Following the announcement, the New York Stock Exchange said it would delist three large Chinese telecom companies, only to reverse that decision amid confusion over the scope of the ban. The exchange reinstated its plan after pressure from then-Treasury Secretary Steven Mnuchin.

To clarify, in January Mnuchin’s Treasury Department issued a statement naming China Mobile, China Telecom and China Unicom Hong Kong Ltd. as the companies that must be delisted.

“The global financial institutions that deal with these Chinese military company securities are stymied,” said John Smith, a former top sanctions official at the Treasury Department and now a partner at law firm Morrison & Forrester. “All the trading that would normally be done by the biggest global institutions around has stopped because they are deathly afraid of violating U.S. sanctions.”

OFAC has put out limited guidance on how big banks employing thousands of Americans who must comply with the investment ban can conduct business that spans across global trade, Smith said.

Unless Trump’s ban is reversed, US investors have a year to exit companies once they appear on the blacklist. For the companies that appeared on the original list last year, investors have until May 27 to wind down new transactions and until Nov. 11 to fully divest.

Biden’s posture should not come as a surprise: Treasury Secretary Janet Yellen and her team have indicated a continuation of the Trump administration’s tough stance on China.

“It is critical that we use Treasury’s tools to hold China accountable for actions they take that are not consistent with international law and that put our national security at risk,” Wally Adeyemo, deputy Treasury secretary, said in February during his Senate confirmation hearing. Part of that is to take “a critical look at how Chinese firms may be using our financial system to do just that.”

And yet, judging by the market response, the Bloomberg report was a surprise because some of the biggest Chinese ADRs including BABA, TCEHY and JD all droped in unison, disappointed that Beijing does not hold more sway (for now) over the US president.