The Trump administration is set to add China’s largest microchip manufacturer maker, Semiconductor Manufacturing International Corporation (SMIC), and third-largest oil producer, China National Offshore Oil Corporation (CNOOC), to the Department of Defense’s blacklist of Chinese firms with alleged ties to the Chinese military, among others.
Why it matters: The move will block SMIC and CNOOC’s from American investment, and could also worsen the deteriorating relationship between the US and China, which has been highlighted by a massive trade and technology war.
• Earlier this month, it was reported that the US Department of Defense was planning to designate four additional Chinese companies as being owned or controlled by the Chinese military, adding to its original total of 31 companies. The four additional companies will include China Construction Technology, China International Engineering Consulting, SMIC, and CNOOC.
• Specifically, the move will make it more difficult for US companies to export technology to the four aforementioned Chinese companies.
• However, experts have said that Trump’s decision is unlikely to have a significant impact on the companies, due to its limited scope and the general uncertainty surrounding the stance of US President-elect, Joe Biden.
The big picture: A consistent theme of Trump’s presidency has been working together with Congress to reduce Chinese companies’ access to the US market, and this latest move could potentially be indicative of how Trump will conduct his last few weeks in office.
• Back in late September, the US announced sanctions restricting American technology exports to SMIC, in the name of protecting national security.
• Reuters reported last week that the Trump administration is set to announce further sanctions on 89 Chinese aerospace and other companies who allegedly have military ties. The new sanctions will restrict them from purchasing certain US goods and technologies.
• All of these moves could be seen as Trump forcing incoming President Biden into making difficult decisions regarding China.
By the numbers: Soon after the announcement, CNOOC shares fell more than 7% in Monday trading in Hong Kong, while SMIC shares dropped about 1%.
• SMIC still has some way to go in catching up to competitors such as Taiwan Semiconductor Manufacturing CO. (which makes chips for Apple Inc’s smartphones), however a Trump administration blacklisting would make it extremely difficult to do so with the prospect of being barred from American suppliers.
Looking ahead: It remains unclear exactly when the companies will be added to the blacklist.
• According to Reuters, Trump signed an executive order earlier this month that would prohibit US investors from buying securities of the blacklisted companies from November 2021 onwards.
• The Biden administration has not yet commented on their stance.