What Do the Two U.S. Blacklists of Chinese Companies Do?

(Bloomberg) -- President Donald Trump’s administration is using two different blacklists of Chinese enterprises that it views as threatening national security. One, the Entity List, is compiled by the Commerce Department. The other, of military companies, is put together by the Department of Defense. Each has a different impact on those targeted.

1. What’s the Commerce list?

Inclusion on the Entity List prohibits a company from doing business with American firms without first obtaining a U.S. government license.

The list was created in 1997 as a way to sanction enterprises that helped build weapons of mass destruction. It’s since been expanded to cover activities considered “contrary to the national security or foreign policy interests of the United States.” Targets can be “businesses, research institutions, government and private organizations, individuals, and other types of legal persons,” according to the Commerce Department’s Bureau of Industry and Security, which administers the list as part of U.S. Export Administration Regulations.

2. What’s the Pentagon list?

Companies on this list are off-limits for investment by Americans.

At the unveiling in June, the Pentagon said it was providing a list -- under the auspices of the National Defense Authorization Act of 1999 -- of “Communist Chinese military companies operating in the United States.” No administration had ever put out the report that that act had required. The list has since been updated several times. Trump also has the authority under the International Emergency Economic Powers Act of 1977 to level financial sanctions against those firms. In November, he issued an executive order that bans American investment in companies put on the list. Those that hold the stocks get time to divest.

3. Which companies are on the lists?

Dozens of enterprises are included on the blacklists, and some are among China’s best-known businesses globally. For example, smartphone manufacturer Xiaomi Corp. and technology giant Huawei Technologies Co. are on the Pentagon list. China National Offshore Oil Corp., the nation’s main deepwater explorer, is among those on the Entity List. So is Semiconductor Manufacturing International Corp., China’s top chipmaker.

For the Pentagon list, click here. To search the Entity List, click here.

4. What about China’s big telecom providers?

The New York Stock Exchange said it would delist depository receipts for China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. to comply with the blacklisting, but only after a series of embarrassing U-turns that underscored the complexity and tension in U.S.-China ties. Index providers such as MSCI Inc. removed shares of the companies from their gauges. BlackRock Inc. and Vanguard Group Inc. have been selling their stakes.

5. How have the telecom stocks fared?

Shares in all three companies were whipsawed by the saga over NYSE delisting since the exchange first announced its plan at the turn of the year. They initially slumped in Hong Kong in early January, then stabilized, helped by a torrent of funds flowing in from mainland China. Even so, over the 12 months to mid-January, all three companies were down more than 20%, compared with a slight dip in the overall Hong Kong stock market in the same period.

6. Will the Biden administration reverse Trump’s orders?

The shape of President-elect Joe Biden’s China policy has yet to fully emerge. Analysts at Jefferies said Jan. 15 they expect some de-escalation in U.S.-China disputes over technology, and predict America may move to technology-specific rather than company-based export curbs. They see lower odds of a reversal of the ban on investment in companies in the Pentagon list, especially in the first six months after Biden takes charge.