WASHINGTON (Reuters) – The Trump administration is considering adding tech giants Alibaba and Tencent to a black list of companies allegedly owned or controlled by the Chinese military, two people familiar with the matter said – a move that could ignite tensions in Beijing days before the president of the USA – select Joe Biden takes office.
Defense Department officials, who oversee the assignments, have not yet finalized plans to add the companies and are also discussing the addition of other Chinese companies, the sources said, speaking on condition of anonymity because the deliberations are private.
If added, Alibaba and Tencent would be subject to an executive order signed by U.S. President Donald Trump in November, which prohibits U.S. investors from buying shares of blacklisted companies as of November 2021.
Tencent declined to comment and Alibaba did not immediately respond to requests for comment. The discussions were first reported by the Wall Street Journal.
Alibaba Group Holding Ltd’s shares fell 5% in morning trading on the Hong Kong Stock Exchange. Tencent Holdings Ltd’s shares fell 3%. Alibaba shares listed in the U.S. closed down just over 5% with Wednesday’s news.
Trump unleashed a series of harsh measures against Chinese companies in his final days at the White House as he seeks to consolidate his hardline legacy and Beijing and Washington face off over the coronavirus and the Chinese crackdown on Hong Kong.
On Tuesday, U.S. President Donald Trump signed an executive order banning transactions with eight Chinese software applications, including Ant Group’s Alipay mobile payment application and Tencent Holdings Ltd.’s QQ Wallet and WeChat Pay.
But some investors expressed skepticism that Tencent and Alibaba would be under long-term US property restrictions.
“These are private companies that are largely controlled, predominantly by US and global investors,” said Brendan Ahern, Chief Investment Officer at Krane Funds Advisors.
The November executive order sought to enforce a 1999 law that gave the Department of Defense the task of drawing up a list of Chinese companies considered to be owned or controlled by the Chinese military.
The Pentagon, which fulfilled the mandate just last year, has so far blacklisted 35 companies, including China’s largest chip maker, SMIC, and oil giant CNOOC.
While the launch of the November directive has prompted index providers like MSCI to start excluding blacklisted companies from their indexes, confusion over the scope of the rules has sparked some dramatic changes on the New York Stock Exchange in recent days.
The NYSE originally announced on December 31 plans to withdraw capital from China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd. On Monday, it made a comeback after consulting regulators in connection with the Asset Control Office. Foreigners of the US Treasury and decided to keep them listed. On Wednesday, he said he would return to the original plan.
S&P Dow Jones Indices followed the NYSE and said on Wednesday night that it will remove the American Depositary Receipts (ADRs) from these three telecommunications companies.
Reporting by Munsif Vengattil, Kanishka Singh and Bhargav Acharya in Bengaluru, Andrea Shalal and Alexandra Alper in Washington, Ross Kerber in Boston; Written by Sayantani Ghosh; Editing by Edwina Gibbs