US is considering adding Alibaba, Tencent to the Chinese stock ban

The departments have debated with the Treasury Department whether adding these companies could have major implications for the capital market, the people said. The plan is still under consideration and may not go ahead as agencies discuss impact on markets, the people added.

Tencent and Alibaba are China’s two most valuable publicly traded companies with a combined market capitalization of more than $ 1.3 trillion, and their shares are owned by dozens of US mutual funds and other investors. If passed, the move would be a major escalation by the outgoing Trump administration in its efforts to wind down US investors’ interests in major Chinese companies.

The Trump administration has stepped up efforts to sanction Chinese companies in the last days. On Wednesday, the New York Stock Exchange said it will continue to scrap China’s three largest telecom companies, reverting to an earlier decision to scrap the plan after receiving “new specific guidance” from the Treasury Department.

On Tuesday, President Trump signed an injunction prohibiting US individuals and companies from transacting with eight Chinese software apps, including Alibaba subsidiary Ant Group Co.’s Alipay and Tencent’s WeChat Pay. The order will take effect within 45 days of the inauguration of President-elect Joe Biden.

Alibaba and Tencent are tracked by the major indexes, including those created by MSCI Inc.

and FTSE Russell. Listed in both New York and Hong Kong, Alibaba and Hong Kong-listed Tencent are heavyweights in widely tracked global stock indices. Like most foreign companies, the shares are not included in the Nasdaq Composite, S&P 500 or Dow Jones Industrial Average.

In the last few weeks of Trump’s presidency, US government officials have been talking about the scope of the list of companies that are prohibited from US investors. Pentagon and state officials have pushed for a wide-ranging list that includes high-profile companies and subsidiaries of companies already mentioned in China. The agencies have pushed for a tougher approach to curb China’s military and security services’ access to data collections, advanced technologies and expertise. The Treasury, fearing forced sales could turn financial markets upside down, wants a more limited list.

The Pentagon, the lead agency managing the list, had no immediate comments. The State Department and the Treasury Department had no immediate comments.

An Alibaba spokeswoman did not respond to requests for comment. A spokesman for Tencent declined to comment.

China’s Ministry of Commerce did not respond to a request sent out of hours, and the Chinese Embassy in the US referred to a December statement from the State Department saying, “China is strongly opposed to the willful repression of Chinese companies. by the United States., “and” the Chinese government will continue to protect the legitimate and legal rights and interests of Chinese companies. “

While Alibaba and Tencent are not controlled by the Chinese government, the State Department and the Pentagon have long said they feared the companies could be forced to share sensitive data about U.S. citizens and businesses with the Chinese government and if channel for Beijing to expand its influence.

Numerous Chinese technology companies have raised tens of billions of dollars from US and international investors in recent years, allowing foreign investors to take advantage of China’s fast-growing economy.

Alibaba and Tencent were among the top components of the MSCI Emerging Markets Index, with a combined weight of 11% as of December 31. Likewise, the two together claimed a weight of 12% in the FTSE Emerging Index as of December 31.

Following the November list, Pentagon expanded its list of banned companies in December to include companies such as top Chinese chipmaker Semiconductor Manufacturing International Corp.

and oil company China National Offshore Oil Corp.

The State Department said in August that the US should address threats from cloud-based systems from Alibaba, Tencent and Baidu. Inc.

According to one familiar with the case, US officials have become increasingly concerned in recent weeks as Alibaba and Ant are under intense scrutiny at home, leaving them further at the mercy of Beijing.

The Chinese government recently tightened the screws for its tech champions, unveiled sweeping antitrust regulations targeting the country’s largest Internet platforms, launched an investigation into Alibaba, and sunk Ant’s blockbuster public market hit.

In the latest installment, Chinese regulators try to get Ant to share the wealth of consumer credit data it has accumulated with the central bank’s credit reporting system, The Wall Street Journal reported.

Tencent operates the hugely popular WeChat app, which has become one of the most powerful tools in Beijing’s arsenal of audience tracking tools. Tencent also has stakes in several US video game companies.

Major US asset managers, including T. Rowe Price Group Inc.,

Black rock Inc.

and Vanguard Group are among the major public shareholders of Alibaba and Tencent through funds, according to data from FactSet.

Asset managers are lobbying to avoid blacklisting companies like Alibaba, said a person familiar with major financial firms’ talks with US regulators.

Last week, the Treasury Department released guidelines banning subsidiaries if a company named on the list owns 50% or more. Derivatives, bonds and certificates of shares, as well as exchange-traded funds, index funds, and mutual funds holding securities issued by these entities in any jurisdiction are also limited to US investors.

Write to Dawn Lim at [email protected], Jing Yang at [email protected] and Gordon Lubold at [email protected]