On November 12, 2020 President Donald Trump signed Executive Order 13599 (the “Order”) aimed at preventing Americans and American entities from investing in Chinese companies that “support the PRC’s military, intelligence, and security apparatuses”. The order applies to 31 companies, some of which are already publicly listed on American exchanges, and will require present investors to divest by November 2021. For observers, the circumstances surrounding the order, as well as the order itself, present important questions regarding how and where its effects will be felt, which falls within within the greater context of how the U.S. will position itself with respect to China, and, broadly, the future of the U.S. China relationship.
The companie addressed under the order (full list of companies) include both privately and publicly owned companies, with some even listed on the New York Stock Exchange. The list not only includes companies that would traditionally be thought of as military related, such as the China Aerospace Science and Technology Corp, which is included, but also technology and communications firms like Huawei and Hikvision. The long-term potential impacts on these firms are unclear but the listed companies are, for the most part, highly capitalized and most have ready access to state capital. This makes it difficult to imagine that a lack of access to U.S. capital markets will significantly impede the companies in their operations. A spokesperson for China’s Ministry of Foreign Affairs also brought attention to the potential losses that American investors face, though the extent to which Americans are invested in these companies and thus the potential fallout is difficult to estimate. However, the U.S. is the largest capital market in the world and one of China’s biggest investors, so it is important to not understate the significance of this order. There is also a risk for the PRC firms that these restrictions may be expanded at some point or that they may face new punitive measures.
Despite these uncertainties, the order helps illuminate some dynamics of the current U.S.-China relationship. The fact that the Executive Order was issued shortly after President Trump’s unsuccessful bid for re-election, a time where the president seems largely occupied with election issues, highlights the effort made by others in the Trump administration, as well as the legislative branch of government, to implement further restrictions on China. While President Trump’s approach to foreign policy is often credited for much of the current U.S.-China tensions, the order is supported by the past work of security agencies and members of Congress who tend towards hardline approaches to China.
The list of companies impacted by the Order is based on a Department of Defense (DoD) assessment. At the behest of members of Congress, the DoD outlined a list of Chinese companies with military ties operating in the United States. A bipartisan group of American Representatives, including Senate Minority Leader Chuck Schumer (D-New York) and noted China-hawk Tom Cotton (R-Arkansas), pressed the Secretary of Defense to publicize the list of companies in 2019. Just one company on this list was not included in Executive Order 13599, China Shipbuilding Industry Corporation, while twelve companies not on the previous DoD list were listed in this new Order. These twelve companies were primarily large SOEs involved in communications, chemical, and nuclear engineering. The list of companies singled out by the Executive order is more comprehensive than the one previously released by the DoD, however, the public DoD list may not have included all companies under DoD watch. While it may seem obvious to many, this highlights that the current U.S. approach to engaging China is not overwhelmingly a factor of the current administration, but is rather a well established bipartisan norm within the American political establishment. This is important because it indicates that a Biden Presidency may not profoundly challenge its approach to China.
Paul Triolo, head of geotechnology at Eurasia Group, has been widely quoted stating that “China will generally stay restrained in its retaliatory measures in order not to poison relations before [US president-elect Joe] Biden takes office on 20 January”. True or not, this idea is at least partially predicated on hopes that a Biden Presidency may provide an opportunity to renew U.S. China relations. However, the context underpinning this recent order may make it difficult for President-Elect Biden to rollback many of the actions that have the potential for retaliation from Beijing. Therefore, the Trump Administration’s Executive Order can be seen as a part of a broad momentum towards a hawkish approach to China in Washington that may continue to influence U.S. foreign policy for some time.