Caixin
Dec 07, 2020 07:43 PM
FINANCE

Update: Index Providers Weigh Response to U.S. Ban on Military-Linked Chinese Stocks

The eight companies removed by FTSE are all on a list of “Communist Chinese military companies” compiled by the U.S. Department of Defense.
The eight companies removed by FTSE are all on a list of “Communist Chinese military companies” compiled by the U.S. Department of Defense.

Global index providers have found themselves caught in the political crossfire between the world’s two largest economies as they weigh their responses to a U.S. order barring American investors from trading securities allegedly linked to the Chinese military.

FTSE Russell was the first such company to respond to the ban, announcing Friday that it will remove eight Chinese company stocks from several of its global indexes based on feedback from subscribers and other stakeholders.

The removal, which will take effect on Dec. 21, is in line with its policy to exclude securities from its indexes if they are subject to sanctions that restrict investment from the U.S., according to FTSE Russell, which is an arm of London Stock Exchange Group PLC.

Other index providers are still evaluating the executive order and considering their stance on the blacklisted Chinese firms.

MSCI Inc. said on Nov. 20 that it would be seeking feedback from market participants on the impact of the order until Friday, including on whether changing existing indexes or introducing new ones may be “necessary or helpful” to maintain the investability of relevant MSCI indexes and assist investors in complying with the order.

Nasdaq is also reviewing the issue, a representative told Caixin by email, but added the number of indexes affected by the order is relatively small.

On Nov. 12, U.S. President Donald Trump signed an executive order prohibiting American investors from trading securities of Chinese companies that the U.S. said support China’s military and intelligence activities. The ban is set to take effect on Jan. 11.

The eight companies removed by FTSE are all on a list of “Communist Chinese military companies” compiled by the U.S. Department of Defense.

The removed companies are: state-owned builder China Communications Construction Co. Ltd., China Nuclear Engineering and Construction Corp. Ltd., China Railway Construction Corp. Ltd., China’s top railway-equipment maker CRRC Corp. Ltd., China National Chemical Engineering Group Co. Ltd., surveillance-camera specialist Hangzhou Hikvision Digital Technology Co. Ltd., server-maker Dawning Information Industry Co. Ltd. and satellite developer China Spacesat Co. Ltd.

On Thursday, the Pentagon added four companies to the list of firms allegedly with ties to the Chinese military, including state-owned oil giant China National Offshore Oil Corp. and leading Chinese high-tech chipmaker Semiconductor Manufacturing International Corp. The list now contains 35 Chinese companies.

In addition to the list of military companies, the U.S. has added a number of Chinese high-tech companies to its “entity list” that requires special licenses for them to buy from their U.S. suppliers.

 Read more 
In Depth: Why Chinese Companies May Get Booted From U.S. Stock Markets

Washington has also stepped up efforts to tighten scrutiny of U.S.-listed Chinese companies amid a longstanding dispute over American regulators’ access to their audits. The House of Representatives passed legislation on Wednesday that would ban any company from being listed on any American securities exchange if the U.S. auditing regulator is unable to view its audits for three years in a row. The bill was approved in May by the Senate, and U.S. President Donald Trump is expected to sign it into law.

This story has been updated to add comment from Nasdaq.

Contact reporter Luo Meihan (meihanluo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

Download our app to receive breaking news alerts and read the news on the go.

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code