In what would amount to an extremely hostile broadside just as trade talks were set to get back on track, the Trump administration is reportedly considering a move to restrict US investors from investing in Chinese equities and otherwise choke off portfolio flows to China.
Although the details are, as yet, sketchy, sources say the White House is pondering a number of options to limit capital flows including what sounds like a decree capping investment via government pension funds.
In addition, people familiar with the discussions say the president is also considering forcibly delisting Chinese companies from US stock exchanges. China ETFs careened lower on the news, first reported by Bloomberg, whose coverage notes that “the fresh momentum behind the effort is partly due to a push from lawmakers to demand reciprocity with Beijing and a pending deadline for the government’s main retirement savings fund to channel billions of dollars into Chinese companies next year”.
Although the logistics of any action are still under discussion, Trump is said to have personally approved the deliberations. Unsurprisingly, Peter Navarro is spearheading the push, although more dovish advisors are on board too. It has explicit support from Marco Rubio, with whom the administration has been consulting.
“It is now considering whether to back legislation [Rubio] put forward over the summer that provoked much debate over the issue of how to protect US investors with funds allocated into what are often opaque Chinese companies”, Bloomberg goes on to write, adding that “Rubio, who sponsored the so-called EQUITABLE Act, is the biggest champion of such efforts on the Hill and his public comments largely mirror what the White House is discussing”. In a statement to Bloomberg, Rubio had this to offer:
This administration deserves credit for their efforts to deal with the threat that the Chinese government and Communist Party poses to US national and economic security, including how Beijing takes advantage of its access to US capital markets for predatory purposes.
One idea, which the administration hasn’t yet figured out how to implement, reportedly involves dictating the composition of stock indexes put together by US firms. In other words, Trump appears poised to intervene in index construction in order to personally decide what can and can’t be included vis-à-vis Chinese equities.
Alibaba plunged as the news crossed.
It would be difficult to overstate the gravity of this.
If the administration pushes ahead with this plan, it’s hard to see how trade talks could possibly move forward. Perhaps more importantly, it would represent the White House intervening directly in capital markets with an eye towards deciding where US investors are allowed to put their money.
This will all be done on the excuse that the Trump administration is trying to protect Americans and defend the country’s national security by “decoupling” economically from Beijing in order to ensure Americans aren’t accidentally funding a hostile foreign government. That’s a line pushed by the likes of Steve Bannon and Kyle Bass.
Oh, and this will doubtlessly reignite the discussion around China weaponizing its hoard of US Treasurys.