Blacklisting Chinese companies could seriously hurt American investors
Large Chinese companies, which play an important role in Beijing’s trade and infrastructure projects, are under threat from escalating tensions between the US and China, which could pose more risks for US investors, according to research firm TS Lombard..
In November Donald Trump issued a decree barring Americans from investing in companies blacklisted by Washington. Presumably, the members of this list are associated with the Communist Party. Reuters reported yesterday that the White House will add China’s largest chipmaker SMIC and major national oil and gas producer CNOOC to the list..
As a result of the action CNOOC fell by almost 14%, and SMIC paper fell in price by almost 3%. At the current auction, the decline continues.
The US is also close to releasing a list of 89 Chinese military-related companies. The persons on the list will be limited in purchases of a number of American goods and technologies.
Many of them are central to the Chinese initiative «One belt, one way» (Belt and Road Initiative, BRI), wrote TS Lombard last week.
This initiative is a large-scale project that builds an extensive network of rail, road and sea routes stretching from the Middle Kingdom to Central Asia, Africa and Europe.. He also directed to boost trade with BRI countries.
TS Lombard said China Communications Construction Company, China State Construction Group, China Railway Construction Corporation and China Telecommunications are among the most risky Chinese companies on the blacklist..
While the list is mostly large state-owned companies, it also includes private projects that have long-standing contracts with the Chinese military or police, such as Huawei and Hikvision..
Investors are also looking for more clarity on how the US executive order will apply to the listed subsidiaries of the listed Chinese SOEs..
TS Lombard expressed concern about how Beijing is trying to create synergies between commercial and military technologies in the long term. This means that private Chinese firms are tempted to interact with the country‘s military..
In China’s five-year plan, Beijing reaffirmed the national «urgency» the consolidation of the military, political and civilian sectors to make their national defense and armed forces more effective.
Government intends to use technology sector to improve warfare.
«Tech companies are called upon to innovate technologies», – said in a post from TS Lombard. Some of these technologies include autonomous combat robots and quantum radar communications systems..
«As Beijing strengthens its civil-military integration policies, the risk for investors is that the US will continue to expand the blacklist, even if its members are not directly affiliated with the Communist Party. Suppliers of food and medicine may be at risk», – warned at TS Lombard.
New US President Joe Biden, would probably want to spend his first six months in office trying «reestablish» Washington’s relationship with Beijing, said William Reinsch, Senior Advisor, Analytical Center for Strategic and International Studies.
«In the short term, Biden will not try to reconcile the two largest economies with all his might, but we should not expect new sanctions either.», – he told CNBC.
Trump, however, may still have time to exacerbate the situation by adding more Chinese companies to the blacklist before leaving the Oval Office..
«It would have put Biden in an awkward position.. I think that his plans do not include replenishment of the list, but he probably will not remove anyone from there either.», – added Reinsch.