Trump Executive Order Barring U.S. investments in Securities of Chinese Military Companies

According to an executive order (EO) signed by President Trump on 11/12/2020, the U.S. will bar U.S. persons or companies from investing in Chinese companies that support the Chinese military operations.  

The order will be effective as of 01/11/2021 at 9:30 AM, EST, when the U.S. stock markets open.  The order bans all American investments in any person or entity operating directly or indirectly in the United States or any of its territories that the U.S. Defense Secretary and/or Treasury Secretary has determined to be a "Communist Chinese military company."  

According to the EO, many civilian private enterprises in China are compelled by the Chinese government to provide support to its military and intelligence activities.  Hence, these companies financial interests are closely tied to the those of the Communist Chinese government. The EO states that these civilian companies directly support the China's "military, intelligence, and security apparatuses and aid in their development and modernization."

The EO points out that these companies raise capital by selling securities to American investors in stock markets and exchanges both within and outside of the United States.  They also take other actions in order to gain access to U.S. capital, such as lobbying U.S. financial stakeholders to include their securities in market offerings.  

In signing the EO, President Trump declared a national emergency based on the threat posted by these Chinese companies.  

The EO also authorizes additional designations of Communist Chinese military companies in the future. After such designation, investments in these companies will be banned after 60 days. 

The impact of this EO is quite substantial, as many U.S. investors including retirement and pension funds invest in Chinese companies.  After the release of the EO, the stock prices of some large Chinese public companies dropped. 

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