US tweaks requirement for investors to dump Chinese tech stocks

Stockholders can keep shares in Huawei, SMIC, and Inpsur - they're just not allowed to sell


The United States last week quietly eased its ban on investors holding stock in, or otherwise profiting from, Chinese companies that are felt to have ties to China's military.

The ban was first imposed by president Donald Trump with a 2020 executive order that forbade US-based individuals or entities owning shares in private Chinese companies identified as offering support to China's military, intelligence, and security agencies, by auditing their "development and modernization."

President Biden later issued a similar order of his own.

Both documents named Huawei, server-maker to the stars Inspur, China's top chipmaker SMIC, and controversial video camera maker Hikvision as verboten to US investors, along with many other Chinese companies.

Trump's order set a divestment deadline of January 11, 2021, but Biden's order extended the deadline to June 3, 2022.

Two days before that deadline, the Office of Foreign Assets Control updated its FAQ with instructions that US investors can still receive dividends from the named Chinese companies and are not required to divest shares.

Buying more shares remains forbidden, and US entities are not allowed to facilitate such trades.

The Register understands the updated FAQ does not represent a softening of policy – the US still believes that plenty of Chinese companies are entangled with the nation's military and should not therefore be nourished with US capital – but instead reflects a clarification of some inconsistencies in the two presidential executive orders that investors found confusing.

But the effect is that US investors can keep their cash in Chinese companies, and bank dividends – but not re-invest those dividends in more scrip. And sale of shares is impossible after June 3, meaning investors can't cash out.

That last requirement means many investors will have sold their securities, as losing the option to liquify a position is not a good idea. But the FAQ also means that US investors can hold their shares in the hope that US-China relations eventually return to a friendlier footing. ®

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