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Trump administration fortifies ban on U.S. investment in Chinese military companies

The administration is prohibiting all exchange-traded funds and index funds from financing Chinese military companies.

Updated: December 30, 2020 - 12:59pm

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The Trump administration has beefed up an executive order banning U.S. investments in Chinese military companies, according to a notice posted by the Department of Treasury late on Monday evening.

The November executive order prohibits exchange-traded funds and index funds from financing Chinese military companies and/or any related subsidiary companies.

In a statement yesterday about the executive order, Secretary of State Mike Pompeo said, "[The prohibition] ensures U.S. capital does not contribute to the development and modernization of the People's Republic of China's (PRC) military, intelligence, and security services."  

According to Treasury's post, the department plans to publicly list subsidiaries that are "50 percent or more owned by one or more Communist Chinese military company(ies)" or "determined to be controlled by one or more Communist Chinese military company(ies)."

The statement also authorizes the Secretary of Defense to add companies to the list for cause. "The Secretary of Defense, in consultation with the Secretary of the Treasury, may determine that an entity, including a subsidiary, is a Communist Chinese military company operating directly or indirectly in the United States or in any of its territories or possessions, and therefore list it as such," reads the Treasury notice.

Pompeo clarified that the executive order "applies to all transactions by U.S. persons, including individuals, institutional investors, pension funds, university endowments, banks, bond issuers, venture capital firms, private equity firms, index firms, and other U.S. entities, including those operating overseas."

Investors' complete divestment from Communist Chinese military companies is expected by Nov. 11, 2021.