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  • Bloomberg

    U.S. Targets Xiaomi, Cnooc in Trump’s Late Anti-China Push

    (Bloomberg) -- The Trump administration blacklisted Chinese smartphone manufacturer Xiaomi Corp. for alleged military links along with the country’s third-biggest oil company over its drilling in the South China Sea, part of a final push to ratchet up pressure on Beijing before President-elect Joe Biden takes office.Xiaomi was one of nine firms added to the Defense Department’s list of Chinese military companies, a move that will restrict U.S. investments in its securities. Other firms include state-owned planemaker Commercial Aircraft Corp. of China Ltd., or Comac, which is central to China’s goal of creating a narrow-body plane that can compete with Boeing Co. and Airbus SE.Meanwhile, the Commerce Department’s move against China National Offshore Oil Corp., the nation’s main deepwater explorer, denies it access to U.S. technologies without specific permission. It follows a December decision to blacklist more than 60 other Chinese companies.Read more: U.S. Blacklists Xiaomi in Widening Push Against China Technology“This measure by the Trump administration once again demonstrates to the public, to the international community, what is unilateralism, double standards and bullying,” China Foreign Ministry spokesman Zhao Lijian told a briefing in Beijing on Friday. “The Chinese side will take necessary measures to ensure the legitimate and lawful rights and interests of Chinese companies, and we will stand by our companies, to protect, to uphold their rights and interests in accordance with law.”Spokespeople for Xiaomi, Cnooc and Comac had no immediate comment. China National Aviation, named on the Pentagon list, didn’t immediately respond to a request for comment.The new raft of curbs mark a late push by President Donald Trump to ensure his pressure campaign against China stays in place long after he leaves office next week. While Biden and many Democrats say they oppose Trump’s tactics on China, the restrictions will give the new president increased leverage over Beijing when his team negotiates on trade with leaders of the world’s second-largest economy.Biden’s PledgeBiden has pledged to work with allies to develop a more coherent strategy against China, though it’s not clear whether there’ll be any immediate shifts in policy. Under an executive order signed by Trump last year targeting what it calls China’s abusive business practices, U.S. investors will need to unwind stakes in designated companies by November.Read more: Biden Will Inherit a Strong Hand Against Xi, Thanks to TrumpXiaomi surpassed Apple Inc. in smartphone sales in the third quarter, according to the International Data Corporation. It joined Hong Kong’s Hang Seng Index in September after grabbing market share from Huawei Technologies Co. as U.S. sanctions on Huawei deepened.Unless the ban against Xiaomi is reversed, the smartphone maker risks being delisted from U.S. exchanges and deleted from global benchmark indexes. China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. were removed by MSCI Inc. last week, while S&P Dow Jones Indices will drop Cnooc from its gauges next month.Xiaomi shares closed 10% lower in Hong Kong, while its suppliers also tumbled. FIH Mobile Ltd., which helps it assemble smartphones, plunged 14%. Component suppliers including Largan Precision Co., Sunny Optical Technology Group Co. and AAC Technologies Holdings Inc. also fell. Spreads on Xiaomi’s dollar bonds widened as much as 40 basis points Friday morning, according to credit traders.Cnooc’s listed unit, Cnooc Ltd., fell 1.1% in Hong Kong. Cnooc is the smallest of China’s so-called big three state-owned oil majors after China National Petroleum Corp. and China Petrochemical Corp., also known as Sinopec. The company’s operations in the South China Sea have proved controversial with neighbors because China claims drilling rights in waters far from its borders, and within 200 miles of countries like Vietnam and the Philippines.“China’s reckless and belligerent actions in the South China Sea and its aggressive push to acquire sensitive intellectual property and technology for its militarization efforts are a threat to U.S. national security,” Commerce Secretary Wilbur Ross said in a statement. “Cnooc acts as a bully for the People’s Liberation Army to intimidate China’s neighbors, and the Chinese military continues to benefit from government civil-military fusion policies for malign purposes.”The ListsThe Trump administration has now listed 44 Chinese companies effectively owned by the People’s Liberation Army under a 1999 law, which authorizes the president to potentially impose sanctions on them. Trump signed an order in November barring American investments in Chinese firms owned or controlled by the military in a bid to pressure Beijing over what it views as abusive business practices.The Department of Commerce’s blacklist, which was created last year to highlight restrictions on more than 100 businesses connected to China, Venezuela and Russia, is more severe and prohibits American firms from supplying those entities without a license.It was not immediately clear why Cnooc had been added now after it was not included in earlier listings. The ban also doesn’t apply to sales of hydrocarbons such as crude oil and also wouldn’t affect joint ventures between Cnooc and Western companies, a senior administration official, speaking on customary condition of anonymity, told reporters in a briefing Thursday.Subsidiaries of Cnooc have stakes in two U.S. shale oil and gas projects, according to Daiwa Capital Markets Hong Kong Ltd. The company also has interests in two offshore projects in the U.S. Gulf of Mexico, which are being developed alongside partners including Royal Dutch Shell Plc and Hess Corp.Other ApplicationsVarious components used in oil drilling can also have military applications, making it unsurprising that Cnooc had been targeted, said Amy Myers Jaffe, a senior fellow for energy at the Council on Foreign Relations. “It’s a hassle for Cnooc, but China has its own oil service industry and offshore industry. It’s probably not as devastating as a company that would lose access to microchips,” she said.Cnooc has been at the center of territorial disputes since 2012, when it invited foreign drillers to explore blocks off Vietnam that Hanoi’s leaders had already awarded to companies including Exxon Mobil Corp. and OAO Gazprom.Aerospace company Comac, key to China’s ambitions to deliver locally-made jets to domestic and foreign carriers, relies on U.S. suppliers for about 60% of parts for its C919 passenger aircraft.Read more: Trump Blacklisting Jolts China’s Ambitions to Take on BoeingThe Commerce Department also added Skyrizon to the military end-user list, saying it poses a threat to national security. Ross said the company’s push to acquire and “indigenize” foreign military technologies posed a significant threat to U.S. national security and foreign policy interests. Skyrizon was unable to be reached for comment.“This action serves to warn the export community of Skyrizon’s significant ties to the People’s Liberation Army,” Ross said.(Adds Chinese foreign ministry comments, closes share prices)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Bloomberg

    China Oil Majors May Be U.S. Target After Telcos Delisting

    (Bloomberg) -- Chinese oil majors may be next in line for delisting in the U.S. after the New York Stock Exchange said last week it would remove the Asian nation’s three biggest telecom companies.China’s largest offshore oil producer Cnooc Ltd. could be most at risk as it’s on the Pentagon’s list of companies it says are owned or controlled by Chinese military, according to Bloomberg Intelligence analyst Henik Fung. PetroChina Co. and China Petroleum and Chemical Corp., also known as Sinopec, may also be under threat as the energy sector is crucial to China’s military, he said.“More Chinese companies could get delisted in the U.S. and the oil majors could come as the next wave,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong. At the same time, the impact of removing the telecom firms is probably minimal as they were thinly traded in the U.S. and they haven’t raised much funds there, he said.A Sinopec spokesperson declined to comment. Cnooc and PetroChina didn’t immediately comment, although Cnooc said in a Hong Kong exchange filing that it was not aware of any reasons for the “unusual” drop in its share price Monday. Cnooc fell 1.8% Monday while PetroChina was unchanged. Sinopec rose 1.7%.The three firms are mostly traded in Hong Kong, although they each have American depositary receipts listed in New York. Trading volumes are much higher in Hong Kong, according to exchange data. Cnooc’s ADRs fell 1.8% at 6:05 a.m. New York time in premarket trading, while PetroChina and Sinopec hadn’t traded.“The bottom line is the impact will be very limited,” said Neil Beveridge, an analyst with Sanford C. Bernstein & Co. in Hong Kong. “Most institutional investors invest through the Hong Kong shares rather than the U.S. ADRs. The biggest downside for investors would be the loss of transparency from SEC filings.”Cnooc’s appearance on the Pentagon list is possibly due to its drilling activity in the fraught South China Sea, said Leo Ho, an analyst with Daiwa Capital Markets. If that’s the case, PetroChina and Sinopec would be at less risk of U.S. action, he said.The NYSE said it would delist the telecom operators to comply with a U.S. executive order imposing restrictions on companies identified as affiliated with the Chinese military. China Mobile Ltd., China Telecom Corp Ltd. and China Unicom Hong Kong Ltd. would all be suspended from trading between Jan. 7 and Jan. 11, and proceedings to delist them have started, the exchange said.Read more: China’s Three Big Telcos Slide on NYSE Move to Delist SharesU.S. President Donald Trump signed an order in November barring American investments in Chinese firms owned or controlled by the military in a bid to pressure Beijing over what it views as abusive business practices. The order prohibited U.S. investors from buying and selling shares in a list of Chinese companies designated by the Pentagon as having military ties.China’s government will adopt necessary measures to safeguard the rights and interests of the nation’s companies, Foreign Ministry spokeswoman Hua Chunying told a daily briefing in Beijing on Monday.“China firmly opposes the U.S. government’s behavior of politicizing trade issues, and abusing its national power and concept of national security to oppress Chinese companies,” Hua said. “This is in serious violation of the principle of market competition and international trade rules.”(Updates with ADR prices in U.S. premarket trading in 5th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Bloomberg

    China’s Three Big Telcos Slide on NYSE Move to Delist Shares

    (Bloomberg) -- China’s state-owned telecommunications companies declined in Hong Kong after the New York Stock Exchange said it’s delisting them to comply with a U.S. executive order that sanctioned companies identified as affiliated with the Chinese military.Shares of China Mobile Ltd., the largest of the three, fell as much as 4.5% on Monday to their lowest level since 2006, while China Telecom Corp. dropped 5.6%. The two posted their biggest intraday losses since mid-November. China Unicom Hong Kong Ltd. slipped 3.8%. The stocks pared most of those losses later in the day.The American depositary receipts of the three firms will be suspended from trading between Jan. 7 and Jan. 11, and the process of delisting them has started, NYSE said. The nation’s oil majors including CNOOC Ltd. also fell on concerns they will be targeted next for delisting in the U.S.“It’s largely a blow to sentiment” that could be temporary, said Mark Huang, an analyst at Bright Smart Securities in Hong Kong. “Though the ADRs are not exceptionally large, there’s some impact on fundraising. Some passive index tracking funds may be selling to avert risk. More importantly, this is another reason to dump telecoms and pursue outperforming sectors.”NYSE’s move followed an order by U.S. President Donald Trump in November barring American investments in Chinese firms owned or controlled by the military, in a bid to pressure Beijing over what it views as abusive business practices. China’s securities regulator said given the small amount of U.S.-traded shares at each of the three phone companies, the impact on them would be limited and they are well positioned to handle any fallout.Direct SupportThe U.S. considers the three as Communist Chinese military companies, which are controlled by or affiliated with the Chinese military or a ministry of the Chinese government, as well as providing services for those bodies, according to the National Defense Authorization Act for Fiscal Year 1999 and its amendments. These firms directly support the Chinese military, intelligence and security apparatuses and aid in their development and modernization, Trump said in his executive order.In a December article, Secretary of State Michael Pompeo discussed how U.S. investors are funding “malign PRC companies” on major indexes such as MSCI and FTSE. The delisting is more of a symbolic blow amid heightened geopolitical friction between the world’s two largest economies, as they are thinly traded on the NYSE. The companies also get almost all of their revenue from China.The decision “may impose short term selling pressure on the stocks,” Citigroup Inc. said in a research report. “However, Chinese telcos’ operations are mainly domestic focused and their sound fundamentals along with recovery trends and positive cash flows will not be affected by the delisting, in our view.”Thin VolumeThe ADRs total less than 20 billion yuan ($3.1 billion) and account for at most 2.2% of the total shares each, the China Securities Regulatory Commission said in a statement Sunday. China Telecom has 800 million yuan of ADRs and China Unicom has about 1.2 billion yuan.“The recent move by some political forces in the U.S. to continuously and groundlessly suppress foreign companies listed on the U.S. markets, even at the cost of undermining its own position in the global capital markets, has demonstrated that U.S. rules and institutions can become arbitrary, reckless and unpredictable,” the CSRC said. “It is certainly not a wise move.”Form 25Typically, a company is moved off the exchange as soon as it’s practical and on to an over-the-counter listing. The exchange then files a Form 25 to the U.S. Securities and Exchange Commission that formally acknowledges the change. The company immediately informs all shareholders of the delisting as well. Shareholders can choose to sell -- at the inevitably lower price -- or maintain their ownership of the company. On the final day of the public listing, the shares stop trading and are transferred to new brokerage accounts to hold for the shareholders.Index provider FTSE Russell will say Monday whether it plans to remove more Chinese stocks from its benchmarks, after the U.S. added to its list of sanctioned securities in recent weeks. FTSE Russell had already listed eight company deletions in early December, a decision that was later followed by peers MSCI Inc. and S&P Dow Jones. The changes from FTSE Russell will be effective from the start of trading on Thursday.In separate statements Monday, each telecommunications operator said it “regrets” NYSE’s actions, and said the decision might affect the prices and trading volume of the companies’ shares. All three companies said they hadn’t received any notification from the NYSE about the delisting.‘Lawful Rights’China Unicom and China Mobile said they’re reviewing ways to protect the companies’ “lawful rights.” China Telecom said it’s considering “corresponding options” to “safeguard the legitimate interests of the company.”China’s Ministry of Commerce said on Jan. 2 that the country will adopt necessary actions to protect the rights of Chinese companies and hopes the two countries can work together to create a fair, predicable environment for businesses and investors. Beijing has limited options to retaliate directly since American companies hardly rely on the Chinese market for financing. China has been seeking to avoid escalating the dispute with Washington before Joe Biden takes office in a few weeks. China’s Ministry of Foreign Affairs didn’t immediately respond Monday to a request for comment.CNOOC fell as much as 5.7% in Hong Kong on Monday, its biggest intraday loss since Dec. 1. PetroChina Co. dropped 2.9% and China Petroleum and Chemical Corp., also known as Sinopec, slipped 1.4% before reversing the drop.China’s largest offshore oil producer CNOOC could be most at risk as it’s on the Pentagon’s list of companies it says are owned or controlled by Chinese military, according to Bloomberg Intelligence analyst Henik Fung. PetroChina and Sinopec may also be under threat as the energy sector is crucial to China’s military, he said.A Sinopec spokesperson declined to comment. Cnooc and PetroChina didn’t immediately respond to emailed requests for comment.(Updates with U.S. claims in sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.