The U.S. this week strengthened an executive order barring U.S. investors from buying securities of China companies with alleged ties to the military.
The Treasury Department published guidance clarifying the executive order, released in November, would apply to exchange-traded funds and index funds as well as subsidiaries of China companies designated as owned or controlled by the military.
The State Department and the Department of Defense had pushed back against a bid by the Treasury Department to water down the executive order, a source said.
Reports said the Treasury was seeking to exclude China companies' subsidiaries from the directive -- which bars new purchases of securities of 35 China companies that the U.S. alleges are backed by the China military, starting in November 2021.
The guidance released Monday specifies that the prohibitions apply to "any subsidiary of a Communist Chinese military company, after such subsidiary is publicly listed by Treasury." It added that the agency "intends to list" publicly traded entities that are 50% or more owned by a Chinese military company or controlled by one.
The list of designated companies, which was mandated by a 1999 law, currently contains 35 companies, including oil company CNOOC Ltd and China's top chipmaker, Semiconductor Manufacturing International.
In November the Trump administration said "The People's Republic of China is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses."
That investment "continues to allow the PRC to directly threaten the United States homeland and United States forces overseas, including by developing and deploying weapons of mass destruction, advanced conventional weapons and malicious cyber-enabled actions against the United States and its people."
Secretary of State Mike Pompeo on Monday said the announcement "ensures U.S. capital does not contribute to the development and modernization of the People's Republic of China's military, intelligence and security services."
"This should allay concerns that U.S. investors might unknowingly support (Chinese military-controlled companies) via direct, indirect or other passive investments."
