Impact of the U.S. Ban on Named Chinese Securities

On January 11, 2021 Executive Order 13959 (“E.O.”) issued by then-President Donald Trump, which was designed to protect U.S. investors from financing Communist Chinese Military Companies (“CCMCs”), went into effect with respect to the 31 originally named CCMSs. In this Q&A, Matthews Asia addresses key questions and the potential impact for investors with respect to the E.O. as well as Hong Kong’s economy/investment environment and renewed regulatory scrutiny in China.

China’s technology, internet and fintech companies have faced renewed regulatory scrutiny. What are the key points for investors?

As in many countries, regulators in China are thinking more about consumer protection, data security and anti-trust issues related to their country’s tech sector. While we do not believe new regulations will result in dramatic changes to the corporate tech landscape in China, we are monitoring developments to help us understand potential impacts on business models and valuations of companies held by our strategies. 

While it appears some Chinese entrepreneurs are being singled out for greater attention, we believe the government’s intention is to limit the political activities of those individuals, rather than to interfere in their commercial activities.  We do not believe the government’s aim is to break up the larger Chinese internet companies.

Are you able to comply with the recent Executive Order on Communist Chinese Military Companies?

Yes. Matthews Asia complies with Executive Order 13959 (“E.O.”) and does not hold any of the 35 named securities that are prohibited under the E.O. as well as the three recently named Chinese telecommunications companies and CNOOC Limited. We are monitoring the situation closely to ensure we continue to comply with the E.O.

On November 12, 2020, then-President Donald Trump issued the E.O. which was designed to protect U.S. investors from financing Communist Chinese Military Companies (“CCMCs”).  The E.O. prohibits United States persons from purchasing: (i) publicly traded securities of any CCMC (there are currently 35 names that are prohibited under the E.O.), (ii) any securities that are derivative of publicly traded securities of any CCMC, and (iii) any securities that are designed to provide investment exposure to publicly traded securities of any CCMC.  The E.O.’s initial restrictions went into effect on January 11, 2021 (and additional E.O. restrictions follow the relevant dates for securities added after November 12, 2020). 

Also, under the new Biden administration, the Office of Foreign Assets Control (OFAC) issued new guidance on January 27, 2021 in the form of an amended General License No. 1A and two new responses to Frequently Asked Questions which addressed the applicability of sanctions under the E.O., as amended by E.O. 13974, to subsidiaries of Communist Chinese Military Companies.  The new guidance by OFAC represents a partial reversal of their prior guidance on this matter in that sanctions under the E.O. would not apply automatically to any subsidiary of an entity named on the Annex to E.O. 13959. Specifically, the new OFAC guidance authorizes until May 27, 2021 all transactions involving any unlisted entities “whose name closely matches, but does not exactly match,” the name of a listed CCMC company but does not apply to transactions involving subsidiaries identified in the OFAC Non-SDN CCMC List (China Mobile Limited, CNOOC Limited, etc.).

The new guidance may be a prelude to a broader walk-back of the “closely matches” standard, which has raised substantial operational and implementation challenges and is deemed to be inconsistent with the text and structure of the E.O.

Does Matthews Asia hold any subsidiaries of the named CCMCs?

As a general practice, because of selective disclosure and other compliance regulations, we are not able to address questions about our current holdings, specifically current exposures and any transactional information regarding whether and when we intend to buy, sell or continue to hold a specific company’s security, other than what is posted on our public website.

Will the Executive Order have an impact on certain indexes?

On December 15, 2020, MSCI announced that as of January 5, 2021, it would delete the securities of the Chinese companies referenced in Executive Order 13959 from its Global Investable Markets Indexes.  On January 7, 2021, MSCI added three additional securities to be deleted from indices under the E.O. after the close of business on January 8, 2021. According to MSCI, this list of securities to be deleted includes only securities issued by the companies explicitly named in the E.O., but not any subsidiaries or affiliated companies.  As of December 31, 2020, we estimate that those 13 securities represented 0.11% of the MSCI ACWI, 0.83% of the MSCI EM index, and 2.13% of the MSCI China index.

Do you think that recent events in Hong Kong will have an impact on the economy and investment environment there?

From an economic perspective, we note that the Hong Kong economy has proved to be very resilient to date in the face of many challenges over past decades, and we believe it is likely to continue to thrive. 

From an investment perspective, the overwhelming majority of Hong Kong-listed companies we hold in our portfolios are mainland Chinese firms doing business on the mainland, so we do not believe there will be a significant impact on those companies over the longer term. 

There are media reports that the Trump administration is considering prohibiting Americans from investing in Alibaba Group Holding Ltd. and Tencent Holdings Ltd.  What is your view on this?

As always, we will comply with all U.S. government rules and regulations as required and applicable to our business.

The Trump administration reversed course and abandoned its plans to blacklist Chinese tech giants Alibaba and Tencent. U.S. persons continue to be permitted to invest in these tech companies and there is no expectation that the new Biden administration will prohibit investments in Alibaba and Tencent in the future. This was welcome news for these Chinese tech companies amid the broader crackdown by the U.S. government.


This material is provided for informational purposes only and should not be construed as investment advice or an offer to buy, sell, or hold any securities. 

Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information. The views, opinions and information stated above are as of the date noted herein, are subject to change and may not reflect current views, opinions or exposures. Investments involve risk. Investing in China may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. 


This information may not be reproduced in any form or transmitted to any person without the express written consent of Matthews Asia.  



The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.