Trump to add China's SMIC and CNOOC to defense blacklist

SMIC, which relies heavily on equipment from U.S. suppliers, was already in Washington's crosshairs. In September, the U.S. Commerce Department informed some firms they needed to obtain a license before supplying goods and services to SMIC after concluding there was an "unacceptable risk" that equipment supplied to it could be used for military purposes.

The expanded blacklist is seen as part of a bid to cement outgoing Republican Trump's tough-on-China legacy and to box incoming Democrat Biden into hardline positions on Beijing amid bipartisan anti-China sentiment in Congress. The Biden campaign declined to comment.

The measure is also part of a broader effort by Washington to target what it sees as Beijing's efforts to enlist corporations to harness emerging civilian technologies for military purposes.

Reuters reported last week that the Trump administration is close to declaring that 89 Chinese aerospace and other companies have military ties, restricting them from buying a range of U.S. goods and technology.

The list of "Communist Chinese Military Companies" was mandated by a 1999 law requiring the Pentagon to compile a catalog of companies "owned or controlled" by the People's Liberation Army, but DOD only complied in 2020. Giants like Hikvision, China Telecom and China Mobile were added earlier this year.

"Our government is right to treat these firms as puppets of the Chinese government," Republican Senator Tom Cotton said, when asked about the upcoming additions. Cotton, a China hardliner, had called on DOD to release the list last year.

TEETH FOR THE BLACKLIST

This month, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by prohibiting U.S. investors from buying securities of the blacklisted companies from November 2021.

The directive is unlikely to deal the firms a serious blow, experts said, due to its limited scope, uncertainty about the stance of the Biden administration and already-scant holdings by U.S. funds.

Still, top U.S. asset managers Vanguard Group and BlackRock Inc each own about 1% of shares of CNOOC's listed unit CNOOC Ltd, and together own roughly 4% of outstanding shares of SMIC, disclosures show.

Vanguard and BlackRock declined to comment.

Combined with other measures, the expected move deepens a rift between Washington and Beijing, already at loggerheads over China's handling of the coronavirus and its crackdown on Hong Kong.

Congress and the administration have sought increasingly to curb the U.S. market access of Chinese companies that do not comply with rules faced by American rivals, even if that means antagonizing Wall Street.