By Dawn Lim, Jing Yang, Gordon Lubold and Alexander Osipovich
U.S. officials are considering prohibiting Americans from
investing in Alibaba Group Holding Ltd. and Tencent Holdings Ltd.,
a potential escalation of the outgoing Trump administration's
efforts to unwind U.S. investors' holdings in major Chinese
State and Defense Department officials in recent weeks have
discussed expanding a blacklist of companies prohibited to U.S.
investments over alleged ties to China's military and security
services, according to people familiar with the matter. The U.S.
government announced its original blacklist in November with 31
Tencent and Alibaba are China's two most valuable publicly
listed companies, with a combined market capitalization of over
$1.3 trillion and scores of American mutual funds and other
investors holding their shares. U.S. listed units of Alibaba fell
more than 5% on Wednesday, and Tencent tumbled by about 4%.
The blacklist is one of several Trump administration efforts
related to investing in Chinese firms. Also on Wednesday, the New
York Stock Exchange said it would delist three major Chinese
telecommunication carriers targeted by a Trump executive order,
after earlier scrapping the plan following "new specific guidance"
from the Treasury Department.
The investment decisions aren't the only steps the Trump
administration has taken.
After decades of policy broadly aimed at cultivating closer
ties, the U.S. has taken a harder line against China in business,
politics, trade and markets that have rippled through the global
U.S. companies have also shifted, with some moving production
out of China and others more closely examining the security of
their trade secrets there. Wall Street, which has long pursued
greater connection between the countries' financial markets, is now
navigating growing risks to tying investors' money to China.
The State and Defense Departments have debated with the Treasury
whether adding Alibaba and Tencent to the U.S. blacklist would have
wide capital-markets ramifications, people familiar with the matter
said. The plan remains under discussion and might not proceed, the
Alibaba and Tencent are tracked by major indexes including those
created by MSCI Inc. and FTSE Russell. Alibaba, listed in both New
York and Hong Kong, and Hong Kong-listed Tencent are heavyweights
in widely followed global stock indexes. Like most foreign
companies, the stocks aren't included on the Nasdaq Composite,
S&P 500 or Dow Jones Industrial Average.
In the final weeks of the Trump presidency, U.S. authorities
have clashed over the scope of the list of companies barred to
American investors. Pentagon and State officials have pursued a
broader list including high-profile firms and many subsidiaries of
already-named companies in China. The agencies have urged a tougher
line to curb China's military and security services' access to data
troves, advanced technologies and expertise. The Treasury, worried
that forced selling could shake financial markets, wants a narrower
The Pentagon, the lead agency managing the list, had no
immediate comment. The State Department and Treasury Department had
no immediate comment.
A spokeswoman at Alibaba didn't respond to requests for comment.
A spokesman at Tencent declined to comment.
China's Ministry of Commerce didn't respond to a request for
comment sent outside business hours, and the Chinese embassy in the
U.S. referred to a December comment by the Ministry of Foreign
Affairs that said, "China firmly opposes the wanton suppression of
Chinese companies by the United States," and "the Chinese
government will continue to safeguard Chinese companies' legitimate
and lawful rights and interests."
While Alibaba and Tencent aren't controlled by the Chinese
government, the State Department and Pentagon have long voiced
concerns that the companies could be coerced to share data on U.S.
citizens and businesses, potentially serving as a conduit for the
Beijing to extend its influence.
In a separate action earlier this week, President Trump signed
an order prohibiting U.S. individuals and companies from
transacting with eight Chinese software apps including Alibaba
affiliate Ant Group Co.'s Alipay and Tencent's WeChat Pay. The
order takes effect in 45 days, after President-elect Joe Biden is
inaugurated on Jan. 20.
Then on Wednesday, the NYSE said the trading of the U.S.-listed
shares of China Mobile Ltd., China Telecom Corp. and China Unicom
(Hong Kong) Ltd. would be suspended at 4 a.m. ET on Monday.
The exchange's reversal is likely to raise further questions
about its handling of the three Chinese stocks. The NYSE said last
week that it would delist the three companies to comply with Mr.
Trump's order, only to change course on Monday and say that it
wasn't delisting them.
A person familiar with the matter attributed NYSE's backtracking
Monday to ambiguity over whether the three companies were covered
by the order. But the new guidance, which the Treasury shared with
the exchange late Tuesday, made it clear that the companies must be
delisted. The Treasury posted that guidance online Wednesday
The Trump administration and supporters of a hard line against
Beijing criticized the exchange's reversal. Treasury Secretary
Steven Mnuchin called NYSE President Stacey Cunningham to voice
The past year has seen several moves that could cut off a
recurring investment pipeline between U.S. investors and Chinese
In recent years, scores of Chinese tech companies have raised
tens of billions of dollars from U.S. and international investors,
allowing foreign investors to capitalize on China's fast-growing
economy. As of Dec. 31, Alibaba and Tencent were among top
constituents in the MSCI Emerging Markets Index, accounting for a
combined 11% weighting. Similarly, the two together claimed a 12%
weighting in the FTSE Emerging Index as of Dec. 31.
After releasing its November blacklist, the Pentagon expanded it
in December to include companies such as top Chinese chip maker
Semiconductor Manufacturing International Corp. and oil giant China
National Offshore Oil Corp.
The State Department in August said the U.S. needs to address
threats posed by cloud-based systems run by Alibaba, Tencent and
Baidu Inc. U.S. officials have become increasingly concerned in
recent weeks as The increased scrutiny Alibaba and Ant have faced
in China, putting the further at the mercy of Beijing, have raised
U.S. officials' concerns in recent weeks, according to one of the
people familiar with the matter.
The Chinese government has tightened control over domestic tech
champions recently, unveiling a sweeping antitrust regulation aimed
at the country's biggest internet platforms, launching an
investigation into Alibaba and scuttling Ant's blockbuster initial
public offering. Regulators are trying to get Ant to share the
troves of consumer-credit data it has amassed with the Chinese
central bank's credit-reporting system, The Wall Street Journal
Tencent operates the hugely popular WeChat app, which has become
one of Beijing's most powerful surveillance tools. Tencent also
owns stakes in several U.S. videogame companies.
Major U.S. asset managers including T. Rowe Price Group Inc.,
BlackRock Inc. and Vanguard Group are among the top public
shareholders of Alibaba and Tencent through funds, according to
Asset managers are lobbying to prevent companies like Alibaba
from becoming blacklisted, said a person familiar with large
financial firms' conversations with U.S. regulators.
The Treasury said last week that investors would be barred from
investing in both blacklisted companies and subsidiaries owned 50%
or more by a company named on the list. Derivatives, bonds and
depositary receipts -- as well as exchange-traded funds, index
funds and mutual funds holding securities issued by these entities
in any jurisdiction -- will also be restricted to U.S.
Write to Dawn Lim at email@example.com, Jing Yang at
Jing.Yang@wsj.com, Gordon Lubold at Gordon.Lubold@wsj.com and
Alexander Osipovich at firstname.lastname@example.org
(END) Dow Jones Newswires
January 06, 2021 18:03 ET (23:03 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.