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Trump Administration Adds China Chipmaker, Oil Giant To Defense Blacklist

Trump Administration Adds China Chipmaker, Oil Giant To Defense Blacklist

The move, first reported by Reuters on Sunday, brings the total number of companies blacklisted to 35.
The Trump administration on Thursday added China's top chipmaker, SMIC, and oil giant CNOOC to a blacklist of alleged Chinese military companies, a move likely to escalate tensions with Beijing before President-elect Joe Biden takes office.

The Department of Defense designated a total of four additional companies as owned or controlled by the Chinese military, also including China Construction Technology Co Ltd and China International Engineering Consulting Corp.

The move, first reported by Reuters on Sunday, brings the total number of companies blacklisted to 35. While the list did not initially trigger any penalties, a recent executive order issued by Republican President Donald Trump will prevent U.S. investors from buying securities of the blacklisted firms starting late next year.

The Chinese Embassy in Washington referred Reuters to prior remarks made by its Foreign Ministry spokesperson that "China firmly opposes the politicization of the relevant Chinese companies."

China National Offshore Oil Corp (CNOOC) did not respond immediately to a request for comment.

SMIC said in a stock market statement that it strongly opposes the decision of United States Department of Defense, which reflects a fundamental misunderstanding by the U.S. administration regarding the end-uses of its business and technology.

The company also said there is no major impact of its addition to the list. SMIC's Hong Kong shares will resume trading in the afternoon after it was suspended earlier on Friday.

Shares of CNOOC's listed unit CNOOC Ltd had fallen by nearly 14% percent following the Sunday report.

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 Trump's tough-on-China legacy and to box Biden, the Democratic president-elect who takes office on Jan. 20, into hardline positions on Beijing amid bipartisan anti-China sentiment in Congress.

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.

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 the DOD only complied it in 2020. Giants like Hikvision, China Telecom and China Mobile were added earlier this year.

In November, 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.

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.

Congress and the Trump 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.

On Wednesday, the U.S. House of Representatives passed a law to kick Chinese companies off U.S. stock exchanges if they do not fully comply with the country's auditing rules, giving Trump one more tool to threaten Beijing with before leaving office.
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