US considers adding Alibaba and Tencent to China’s stock ban

The departments discussed with the Treasury Department whether adding these companies could have broad ramifications in the capital markets, people said. The plan is still under deliberation and may not be approved while the agencies debate its impact on the markets, people added.

Tencent and Alibaba are the two most valuable publicly traded companies in China, with a combined market capitalization of more than $ 1.3 trillion, and their shares are held by dozens of American mutual funds and other investors. If enacted, the move would be a major escalation by the Trump administration in its efforts to undo American investor stakes in major Chinese companies.

The Trump administration has stepped up efforts to sanction Chinese companies in their final days. On Wednesday, the New York Stock Exchange said it would move forward with removing the three largest telecommunications operators in China, reversing an earlier decision to discard the plan after receiving “new specific guidelines” from the Treasury Department.

On Tuesday, President Trump signed an order banning U.S. individuals and companies from trading with eight Chinese software applications, including Alipay, from Tencent’s Alibaba Ant Group Co. affiliate and WeChat Pay. The order takes effect 45 days after the inauguration of President-elect Joe Biden.

Alibaba and Tencent are tracked by major indexes, including those created by MSCI Inc.

and FTSE Russell. Alibaba, listed in New York and Hong Kong, and Tencent listed in Hong Kong are heavyweights in global stock indices widely followed. Like most foreign companies, the shares are not included in the Nasdaq Composite, S&P 500 or Dow Jones Industrial Average.

In the final weeks of Trump’s presidency, U.S. government officials clashed over the scope of the list of banned companies for American investors. Pentagon and state officials have been pushing for a wide-ranging list that includes prominent companies and subsidiaries of companies already appointed in China. The agencies called for a tougher line to restrict China’s military and security services’ access to databases, advanced technologies and expertise. The Treasury, fearing that the forced sale could shake the financial markets, wants a narrower list.

The Pentagon, the leading agency in managing the list, did not immediately comment. The State Department and the Treasury Department did not immediately comment.

An Alibaba spokeswoman did not respond to requests for comment. A Tencent spokesman declined to comment.

The Chinese Ministry of Commerce did not respond to a request sent outside business hours, and the Chinese embassy in the US referred to a December comment by the Foreign Ministry that said “China is firmly opposed to arbitrary repression by Chinese companies by the United States, ”and“ the Chinese government will continue to safeguard the legitimate and legal rights and interests of Chinese companies ”.

Although Alibaba and Tencent are not controlled by the Chinese government, the State Department and the Pentagon have long been concerned that companies may be coerced into sharing confidential data about US citizens and companies with the Chinese government and serving as a channel for Beijing extend its influence.

Dozens of Chinese technology companies have raised tens of billions of dollars from American and international investors in recent years, allowing foreign investors to capitalize on the rapid growth of the Chinese economy.

Alibaba and Tencent are among the main constituents of the MSCI Emerging Markets Index, accounting for a combined weighting of 11% on December 31. Likewise, the two together claimed a weighting of 12% on the FTSE Emerging Index on December 31.

Following the November list, the Pentagon expanded its list of banned companies in December to include companies such as China’s largest chip maker, Semiconductor Manufacturing International Corp.

and the China National Offshore Oil Corp.

The State Department in August said the U.S. needs to face threats from cloud-based systems operated by Alibaba, Tencent and Baidu Inc.

US officials have become increasingly concerned in recent weeks, as Alibaba and Ant are under intense scrutiny at home, leaving them even more at the mercy of Beijing, according to a person familiar with the matter.

The Chinese government recently tightened the screws of its technology champions, revealing a broad antitrust regulation aimed at the country’s largest internet platforms, launching an investigation into Alibaba and ending the successful initial public offering of Ant.

In the last episode, Chinese regulators are trying to get Ant to share the consumer credit data it has accumulated with the central bank’s credit reporting system, The Wall Street Journal reported.

Tencent operates the extremely popular WeChat app, which has become one of the most powerful tools in Beijing’s arsenal of tools to monitor the public. Tencent also has stakes in several US video game companies.

Major US asset managers, including T. Rowe Price Group Inc.,

Black stone Inc.

and Vanguard Group are among the main public shareholders of Alibaba and Tencent through funds, according to data from FactSet.

Asset managers are lobbying to avoid a situation in which companies like Alibaba can be blacklisted, said a person familiar with the talks of large financial companies with American regulators.

Last week, the Treasury Department issued guidelines that include subsidiaries in the ban if a company named on the list owns 50% or more of them. Derivatives, securities and deposit receipts, as well as exchange-traded funds, index funds and mutual funds holding securities issued by these entities in any jurisdiction will also be restricted to US investors.

Write to Dawn Lim at [email protected], Jing Yang at [email protected] and Gordon Lubold at [email protected]