Following a weeks-long disagreement between Treasury officials and the State Department, the Trump administration has reportedly decided it will not ban American investments in Chinese tech giants Alibaba, Tencent and Baidu, but it will prohibit Americans from investing in nine other firms in a move that further heightens tensions between the world’s two largest economies.
The Defense Department plans to add nine firms, which have yet to be publicly identified, to its list of “Communist Chinese military companies” as soon as Wednesday, the Wall Street Journal first reported.
Despite reports to the contrary, U.S. officials have ultimately decided against adding Alibaba, Tencent and Baidu to the list after pushback from Treasury Secretary Steven Mnuchin and others in the department who feared doing so would trigger economic fallout spurred by widespread selloffs in the heavily traded Chinese tech giants.
The updated list should bring the total number of firms deemed as “owned or controlled by the Chinese military” to 40; others on the list include China Telecom, China Mobile and popular smartphone-maker Huawei.
President Donald Trump issued an executive order in November effectively barring investments in those firms starting January 11; according to the Wall Street Journal, U.S. investors have until November to sell shares in any of the newly barred firms.
U.S.-listed shares of Alibaba and Tencent surged 6% and 3% immediately after the report, while Baidu shares on the Nasdaq were roughly flat.
The Defense Department did not immediately respond to Forbes‘ request for comment.
In response to Trump’s executive order, the New York Stock Exchange almost delisted China Telecom, China Mobile and China Unicom, but it backtracked on the decision on January 4 after “further consultation with relevant regulatory authorities.”
The firms identified by the Defense Department as owned or controlled by China’s military “raise capital by selling securities to United States investors that trade on public exchanges both here and abroad, lobbying United States index providers and funds to include these securities in market offerings, and engaging in other acts to ensure access to United States capital,” the executive order reads. “In that way, the [People’s Republic of China] exploits United States investors to finance the development and modernization of its military.”
The Trump administration has taken immense action to crackdown on perceived espionage threats from Chinese multinational corporations. The president declared a national emergency to facilitate the November executive order, saying China “compels the civilian Chinese companies to support its military and intelligence activities,” which therefore constitutes “an unusual and extraordinary threat” to domestic national security. Meanwhile, the Justice Department in 2019 indicted Huawei for allegedly stealing trade secrets from T-Mobile, and in February it levied additional charges on the conglomerate for alleged racketeering and further conspiracy to steal trade secrets from six U.S. companies.