US investment banks will remove Hong Kong products (0388.HK) after a request from Donald Trump.
The order of the US president prohibits American citizens from investing in Chinese companies that the government considers to have links with China’s military.
JPMorgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) will remove a total of 500 structured products listed in Hong Kong from the list, according to reports from the Hong Kong Stock Exchange on Sunday.
Trump’s request covers 35 Chinese companies that, according to Washington, “enable the development and modernization” of the Armed Forces of China and “directly threaten” the security of the United States.
Stock exchange operator Hong Kong Exchanges and Clearing said in a statement that it is “working closely with the relevant issuers to ensure orderly closure and facilitate the repurchase agreements being organized by the issuers”.
He added: “We do not believe that this will have a significant adverse impact on the Hong Kong structured products market, the largest in the world with more than 12,000 products listed.”
From January 11, US investors will be prohibited from owning or trading any securities of the banned companies. This includes pension funds or owning shares in black listed Chinese companies.
Transactions carried out in order to dispose of the companies’ property will be permitted until November 11, 2021.
“China is increasingly exploiting the capital of the United States to obtain resources and enable the development and modernization of its military, intelligence and other security devices,” said a statement from the White House.
The rules left financial institutions – which face fines for non-compliance – confused.
Investors were taken on a rough ride when the New York Stock Exchange (^ AMZI) announced on December 31 that it would remove three major Chinese telecommunications companies in fulfillment of Trump’s orders, just to reverse its decision.
On Wednesday, the NYSE said it dropped its plans after “further consultations with relevant regulatory authorities regarding the Office of Foreign Assets Control”.
But on Thursday, in another twist influenced by pressure from the Trump administration, he said he would proceed with the cancellation of shares in American deposits at China Telecom (CHA), China Mobile (CHL) and China Unicom (CHU).
Major stock index groups such as MSCI (MSCI), S&P Dow Jones Indices (^ DJI) and FTSE Russell, as well as the popular trading app Robinhood, have all taken steps to fulfill the request.
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Huawei and Hikvision (002415.SZ) from China – one of the world’s largest manufacturers and suppliers of video surveillance equipment – are among the blacklisted companies.
Although the order does not specify specific penalties for violations, it does give the U.S. Treasury Department the ability to invoke “all powers” granted by the International Emergency Economic Powers Act, which allows for the use of severe sanctions.
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On Saturday, China responded to the United States with new rules to contain foreign sanctions against Chinese companies and citizens as economic relations between Beijing and Washington weaken.
The order, which went into effect on Saturday, enables China to tell companies and citizens to ignore foreign restrictions and sue global companies for failing to comply.
This means that China can counterattack countries or companies that comply with U.S. bans, such as the Huawei ban, which has prompted many global nations to break ties with the Chinese company.
In July, the UK government decided to block the Chinese company’s participation in the country’s 5G network. As a result, British telecommunications companies were instructed to remove Huawei equipment from the 5G network by 2027 and to stop buying new company 5G equipment by the end of 2020.
The Rules to Combat Unjustified Extraterritorial Application of Foreign Legislation and Other Measures are designed to combat foreign laws that “unfairly prohibit or restrict” people or companies in China from doing normal business, the country’s trade department said.
He said the measures are necessary to safeguard China’s national sovereignty and security and to protect the rights of its citizens and entities.
A Chinese person or organization that is restricted by foreign law to “engage in normal economic activities, commercial and related to a third state or its citizens”, can report it to the Department of Commerce within 30 days.
The China Department of Commerce will then assess a case of potential violation of international law, impact on China’s sovereignty and national security, and impact on Chinese citizens.