Addressing Threat From Investments That Finance Chinese Military Companies

Nov 17, 2020

Summary

Stops Americans from buying stocks in Chinese companies that help China's military, in order to protect U.S. national security.

What problem does this solve?

The People's Republic of China was using money from U.S. investors to fund the growth of its military, which poses a direct threat to the United States. This order blocks Americans from investing in specific Chinese companies tied to the military, cutting off that source of money.

What does this order do?

Prohibits investment in certain Chinese companies

Forbids any U.S. person from buying or selling publicly traded stocks of companies identified as 'Communist Chinese military companies'.

Declares a national emergency

Finds that China's use of U.S. capital to build its military is an 'unusual and extraordinary threat' to the national security, foreign policy, and economy of the United States.

Requires selling of existing investments

Allows U.S. investors who already own stocks in the banned companies a specific period of time to sell them off completely.

Defines 'Communist Chinese military company'

Identifies these companies as those listed by the Secretary of Defense or the Secretary of the Treasury for supporting China's military, intelligence, and security sectors.

Authorizes the Treasury Department to enforce the order

Gives the Secretary of the Treasury the power to create rules and regulations to carry out the order, in consultation with other national security agencies.

Who does this affect?

U.S. investors
U.S. financial institutions
Designated Chinese military companies

What is the real world impact?

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Protects national security

Prevents U.S. money from being used to fund the development and modernization of China's military, intelligence, and security forces, which are seen as a threat to the United States.

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Impacts U.S. investors and financial markets

Forces U.S. investors to sell their holdings in certain Chinese companies, potentially at a loss. It also limits investment opportunities and may affect U.S. financial firms that operate in China.

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Increases economic pressure on China

Uses economic and financial tools as part of a broader strategy to counter China's global influence and military expansion. This action can increase tensions between the two countries.

When does this start?

This order establishes several key dates for its rules to take effect.

Investment prohibition start date

Beginning at 9:30 a.m. EST on January 11, 2021, U.S. persons were banned from transactions in designated Chinese military companies.

Divestment deadline for original list

U.S. persons holding securities in the initially listed companies had until 11:59 p.m. EST on November 11, 2021, to sell them.

Prohibition for newly listed companies

For any new company added to the list, the investment ban begins 60 days after the company is officially designated.

Divestment deadline for newly listed companies

Investors have 365 days from the date a new company is added to the list to sell any holdings they owned prior to the ban.