President Joe Biden has issued an executive order that prohibits some US investments in Chinese technology firms that pose a threat to national security and human rights. The order, which was announced on Wednesday, expands and replaces a previous order by former President Donald Trump that targeted 31 Chinese companies linked to the Chinese military.
The new order bans US investors from buying or selling publicly traded securities of 59 Chinese companies, including Huawei, SMIC, Hikvision, and Xiaomi2. The order also restricts US investors from owning or controlling 50% or more of the shares of these companies, or providing them with financing or services. The order will take effect on August 2, 2023, and US investors will have one year to divest from the banned companies.
The order aims to protect US national security and prevent US capital and expertise from aiding China’s military modernization and surveillance activities. The order also reflects the Biden administration’s commitment to uphold human rights and democratic values in the face of China’s repression of ethnic minorities, dissidents, and protesters.
US investors worry about China’s response and impact on markets
While the US stock market largely shrugged off the news of Biden’s order, some US investors expressed concerns about China’s potential retaliation and the impact on the global markets. They said that China could take countermeasures against US companies or interests in China, or reduce its purchases of US technology products or treasury bonds. They also said that the order could increase uncertainty and volatility in the markets, as well as hurt the prospects of cooperation and dialogue between the two countries.
Some examples of US investors’ worries are:
- Rick Meckler, partner at Cherry Lane Investments in New Jersey, said: “Much depends on how China decides to react to that. The very significant technology war between the countries is a big negative and the administration seemed to be trying to make that announcement without making too many waves with China.”
- Tom Plumb, CEO of mutual fund Plumb Funds, said: “It is naive to think that there won’t be some type of retaliation from China.” He added that China could restrict exports of rare earths or target other US technology companies.
- David Kotok, chief investment officer at Cumberland Advisors, said: “This is a very dangerous game. It raises geopolitical risk. It raises market risk. It raises uncertainty.” He also said that the order could backfire by pushing China to become more self-reliant and competitive in technology.
US investors need to be cautious and diversified when investing in China
US investors who invest in China or Chinese companies need to be cautious and diversified when dealing with the risks and opportunities posed by Biden’s order. They need to:
- Do their research: Before investing in China or Chinese companies, they need to do their research on the political, economic, legal, and regulatory environment in China, as well as on the specific companies they are interested in. They need to understand the potential benefits and risks of investing in China or Chinese companies, and compare them with other alternatives.
- Follow the rules: When investing in China or Chinese companies, they need to follow the rules and regulations set by both the US and Chinese authorities. They need to comply with the restrictions and requirements imposed by Biden’s order, as well as with any other sanctions or measures that may affect their investments. They also need to respect the laws and norms of China when operating or investing there.
- Diversify their portfolio: When investing in China or Chinese companies, they need to diversify their portfolio across different sectors, regions, markets, and currencies. They need to avoid putting all their eggs in one basket, and spread their risks and returns among various sources of income and growth. They also need to hedge their exposure to currency fluctuations or market shocks.
