US President Joe Biden plans to amend a US ban on investments in companies linked to China’s military this week, after former US president Donald Trump’s policy was challenged in court and left investors confused about the extent of its reach to subsidiary firms, people familiar with the matter said.
Under Biden’s amended order, the US Department of the Treasury would create a list of companies that could face financial penalties for their connection to China’s defense and surveillance technology sectors, the people said.
Until now, the financial sanctions and selection of targeted companies were tied to a congressionally mandated US Department of Defense report.
The amended order, which Biden is expected to sign later this week, would change the criteria for blacklisting entities to capture those that operate in the defense or surveillance technology sectors. The Trump order targeted companies owned, controlled or otherwise affiliated with the Chinese military.
The Biden administration is set to keep a large number of previously listed entities and treasury’s Office of Foreign Assets Control would add new entities as part of the order, one of the people said.
The treasury would consult the state and defense departments in the listing process.
Spokespeople for the White House and the treasury department did not respond to requests for comment.
Some stocks related to China’s defense industry fell yesterday, led by AVIC Jonhon Optronic Technology Co (中航光電) and AECC Aviation Power Co (航發動力), while already-blacklisted Advanced Micro-Fabrication Equipment Inc (中微半導體設備) fell as much as 2.9 percent.
After two Chinese companies successfully challenged the order, Biden’s team said a revision of the policy was necessary to ensure it was legally sound and sustainable in the long term.
By shifting responsibility to the treasury, the Biden team aims to solidify the legal standing for the penalties, one of the people said.
The administration’s review of the ban has been closely watched on Capitol Hill, where lawmakers are eager for a tougher stance on Beijing.
In a letter this week to US Secretary of Defense Lloyd Austin, a bipartisan group of lawmakers — including Republican Senator Marco Rubio, Democratic Senator Mark Kelly and Republican Representative Liz Cheney — demanded the publication of a new list of Chinese military-affiliated entities. The list was due on April 15 and is mandated by last year’s defense authorization bill.
“The US government must continue to act boldly in blocking the Chinese Communist Party’s economic predation against our industrial base,” they said in the letter. “We must not allow China to erode America’s military primacy.”
The White House and the treasury would also clarify that the prohibitions apply to subsidiaries of listed companies only if that subsidiary is itself listed by the treasury, the people said.
The previous administration aimed to also capture those companies whose names closely match the listed entities.
“Providing treasury with authority over which Chinese military companies are subject to capital markets sanctions would tend to help Wall Street maintain the status quo to the extent possible,” said Roger Robinson Jr, former chairman of the Congressional US-China Economic and Security Review Commission.
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