President Trump took decisive action last month to protect American investors and pension holders from funding Communist Chinese military companies (CCMCs) through Executive Order (13959) Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies. The Trump Administration is coordinating closely to counter the threat these companies present to the economy and national security of the United States.
Today, the Treasury Department noted that Executive Order 13959 prohibits the ownership of any CCMC shares by exchange-traded funds (ETFs) and index funds, as well as any of their 50 percent or greater majority-owned subsidiaries that have been publicly listed by the Treasury or Defense Departments. This ensures U.S. capital does not contribute to the development and modernization of the People’s Republic of China’s (PRC) military, intelligence, and security services.
The Executive Order applies to all transactions by U.S. persons, including individuals, institutional investors, pension funds, university endowments, banks, bond issuers, venture capital firms, private equity firms, index firms, and other U.S. entities, including those operating overseas. This should allay concerns that U.S. investors might unknowingly support CCMCs via direct, indirect, or other passive investments including those linked to educational, ETFs, venture funds, private equity, Real Estate Investment Trusts, commodities, endowments, pensions, or any other investment funds tracking bonds, loans, lease lines, debt or equity indices that include securities of CCMCs or subsidiaries publicly listed by the U.S. government.
Beginning on January 11, 2021, U.S. investors will no longer be able to transact in publicly traded or private market debt or equity securities, or any securities that are derivative thereof, regardless of the percentage ownership of CCMCs, with full divestment required by November 11, 2021.