The US is considering adding Alibaba, Tencent to China’s stock ban

Departments have debated with the Treasury Department about whether adding these companies could have broad ramifications in capital markets, people said. The plan is still under deliberation and may not be implemented as agencies discuss its impact on markets, people added.

Tencent and Alibaba are the two most valuable listed companies in China with a combined market capitalization of more than $ 1.3 trillion and their shares are in the hands of various US investment funds and other investors. If enacted, the measure would be a major escalation by the Trump administration coming out in its efforts to develop U.S. investor stakes in major Chinese companies.

The Trump administration has stepped up efforts to sanction Chinese companies in its last days. On Wednesday, the New York Stock Exchange said it would move forward to withdraw China’s top three telecom companies, backtracking on a previous decision to undo the plan after receiving “new specific guidance” from the Treasury Department.

On Tuesday, President Trump signed an order banning U.S. individuals and businesses from transacting with eight Chinese software applications, including Alipay, Alibaba’s subsidiary, Alipay, and Tencent’s WeChat Pay. The order will take effect in 45 days, following the inauguration of President-elect Joe Biden.

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

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

In the last few weeks of Trump’s presidency, U.S. government officials have been faced with the scope of the list of off-limits companies to U.S. investors. Pentagon and state officials have been pushing for a wide-ranging list that includes high-profile companies and subsidiaries of already-named companies in China. Agencies have urged a tougher line to curb China’s military and security services’ access to data, advanced technologies and experience. The Treasury, for fear that forced selling could shake up financial markets, wants a narrower list.

The Pentagon, the main agency that manages the list, made no immediate comment. The State Department and the Department of the Treasury made no immediate comment.

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

China’s Ministry of Commerce did not respond to a request sent outside of business hours and China’s embassy in the United States referred to a December Foreign Ministry comment that said, “China s ‘strongly opposes the disproportionate suppression of Chinese enterprises by the United States’ And ‘the Chinese government will continue to safeguard the legitimate and lawful rights and interests of Chinese enterprises.’

Although Alibaba and Tencent are not controlled by the Chinese government, the State Department and the Pentagon have long said they fear companies may be forced to share sensitive data about U.S. citizens and businesses with the Chinese government. and serve as a conduit for Beijing. extend its influence.

A lot of Chinese technology companies have raised tens of billions of dollars from U.S. and international investors in recent years, which has allowed foreign investors to capitalize on China’s fast-growing economy.

Alibaba and Tencent have been one of the main components of the MSCI Emerging Markets index, with a combined weighting of 11% at 31 December. Similarly, the two together have claimed a 12% weighting in the emerging FTSE index as of December 31st.

Following the November list, in December the Pentagon expanded the list of banned companies to include companies such as China’s largest chip maker, Semiconductor Manufacturing International Corp.

and China National Offshore Oil Corp.

The State Department in August said the US must face threats from cloud-based systems led by Alibaba, Tencent and Baidu Inc.

U.S. officials have become increasingly concerned in recent weeks as Alibaba and Ant are under intense control at home, putting them at the mercy of Beijing, according to one of the people familiar with the matter.

The Chinese government has hardened its screws on its technology advocates recently, unveiling extensive antitrust regulation targeting the country’s largest Internet platforms, launching an investigation into Alibaba and eliminating Ant’s initial box office offering.

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

Tencent operates the highly popular WeChat app, which has become one of the most powerful tools in Beijing’s tool arsenal for controlling the public. Tencent also has stakes in several U.S. video game companies.

Leading U.S. asset managers, including T. Rowe Price Group Inc.,

BlackRock Inc.

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

One person familiar with the talks of large financial companies with US regulators said asset managers are pushing to avoid a situation where companies like Alibaba could go blacklisted.

Last week, the Treasury Department issued guidelines that include subsidiaries in the ban if a listed company has 50% or more of them. Derivatives, bonds and deposit income, as well as exchange traded funds, indices and investment funds that have securities issued by these entities in any jurisdiction will also be restricted to US investors.

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