Targeting Asia's two most valuable companies, worth a combined
$1.3 trillion, would be U.S. President Donald Trump's most dramatic step yet in
a recent raft of measures unleashed against Chinese companies as he seeks to
cement his hardline policy against Beijing during his final days in office.
Defense Department officials, who oversee the blacklist
designations, have not yet finalized plans and are also discussing adding other
Chinese firms to the list, the sources said, speaking on condition of anonymity
because the deliberations are private.
Both companies declined to comment. The discussions were
first reported by the Wall Street Journal.
Shares in Alibaba, China's biggest e-commerce firm, and
Tencent, a gaming and social media behemoth, were down roughly 4% in afternoon
trade on the Hong Kong Stock Exchange. Alibaba's U.S.-listed shares closed down
just over 5% on the news on Wednesday.
Some investors expressed skepticism, however, that Alibaba
and Tencent would face long-term restrictions - given that they are worth a
combined $1.3 trillion, widely held by U.S. investors and the likely
reputational and financial hit to U.S. stock markets.
"It's a very bad policy and there's enough money in
Asia, lots and getting bigger, that one shouldn't force these companies out of
America," said Thomas Caldwell, chairman of Caldwell Investment Management
in Toronto and an investor in the New York Stock Exchange. "Money and
markets should be neutral."
Trump escalated measures against Chinese firms in November
with an executive order that bans U.S. investors from buying shares of Chinese
firms.
On Tuesday, he ordered a ban on transactions with eight
Chinese software applications, including Ant Group's Alipay mobile payment app
and Tencent's QQ Wallet and WeChat Pay.
The November executive order sought to give teeth to a 1999
law that tasked the Defense Department with drafting a list of Chinese
companies deemed to be owned or controlled by the Chinese military.
The Pentagon has so far blacklisted 35 firms, including
China's top chipmaker SMIC and oil giant CNOOC.
While release of the November directive prompted index
providers like MSCI to begin deleting blacklisted companies from their indexes,
confusion about the scope of the rules has prompted some dramatic flip-flops by
the New York Stock Exchange in recent days.
The NYSE originally on Dec. 31 announced plans to delist
China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd. On
Monday, it did a U-turn after consulting with regulators in connection with the
U.S. Treasury's Office of Foreign Assets Control and decided to keep them
listed. On Wednesday it said it will return to the original plan.
S&P Dow Jones Indices have followed the NYSE and said
late on Wednesday it will remove the American Depositary Receipts (ADRs) of the
three telecom companies.
The Trump administration has had both Tencent and Alibaba's
financial technology affiliate Ant Group in its crosshairs for some time.
In August, Trump signed an executive order to ban some U.S.
transactions with Tencent's WeChat. But the restrictions were blocked by courts
mainly on freedom of speech grounds.
Reuters reported in November that the U.S. State Department
had submitted a proposal to add Ant Group to another trade blacklist to deter
U.S. investors from taking part in its now-aborted initial public offering. But
the Commerce Department, which oversees the blacklist, shelved the proposal
after Alibaba President Michael Evans urged Commerce Secretary Wilbur Ross to
reject the proposal.
Ant Group's $37 billion IPO was halted after co-founder Jack
Ma publicly criticized China's regulatory system in October, setting off a
concerted regulatory crackdown in the country on Alibaba and Ant.
Alibaba's market value has shrunk by more than a quarter
since November after the Ant Group IPO failed. But valued at more than $600
billion, it is still among the biggest 10 companies globally.
-Reuters
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