US Adds China’s Top Chipmaker, Oil Giant to List of Chinese Military Companies

December 4, 2020 Updated: December 4, 2020

The Trump administration on Dec. 3 added China’s top chipmaker, SMIC, and oil giant CNOOC to a blacklist of companies tied to the Chinese military.

The Department of Defense designated a total of four additional companies as owned or controlled by the Chinese military, including China Construction Technology Co Ltd and China International Engineering Consulting Corp.

The move, first reported by Reuters on Sunday, takes to 35 the total number of blacklisted companies. While the list did not initially trigger any penalties, a recent executive order by President Donald Trump will prevent U.S. investors from buying the firms’ securities from early next year.

The order was aimed at preventing American capital from being used to fund the Chinese regime’s military development. It stated that Beijing uses ostensibly private companies to support military and intelligence activities under the strategy of “civil-military fusion.”

In Beijing, a foreign ministry spokeswoman said the regime opposed the new blacklistings.

“The U.S. should stop abusing national power and national security concepts to suppress foreign companies,” Hua Chunying told a regular news briefing on Friday.

In a stock market statement, SMIC said it strongly opposed the decision, which reflected a fundamental misunderstanding by the U.S. administration of the end-uses of its business and technology.

The company also said there was no major impact from its addition to the list. Its Hong Kong shares closed Friday down 5.4 percent after having resumed trading in the afternoon following a suspension.

CNOOC, formally known as China National Offshore Oil Corp, said it was “shocked and regretful” at being added to the list. The move was based on “false and inaccurate information,” it said in a statement on its website.

In an exchange filing, the state-owned company’s listed arm, CNOOC Ltd, said it was assessing the impact of the situation on the group and would closely monitor developments.

Shares of CNOOC Ltd had fallen nearly 14 percent after Sunday’s report, and tumbled 3.9 percent by Friday’s market close.

SMIC, which relies heavily on equipment from U.S. suppliers, was already in Washington’s crosshairs.

In September, the U.S. Commerce Department informed some firms they needed to obtain a license before supplying goods and services to SMIC after concluding there was an “unacceptable risk” that equipment supplied to it could be used for military purposes.

The expanded blacklist is seen as part of a bid to cement Trump’s tough-on-China legacy.

The measure is also part of a broader effort by Washington to target what it sees as Beijing’s efforts to enlist corporations to harness emerging civilian technologies for military purposes.

The list of “Communist Chinese Military Companies” was mandated by a 1999 law requiring the Pentagon to compile a catalog of companies “owned or controlled” by the People’s Liberation Army, but the DOD only compiled it in 2020.

Giants like Hikvision, China Telecom and China Mobile were added this year.

In November, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by barring U.S. investors from buying securities of the firms, from November 2021.

Top U.S. asset managers Vanguard Group and BlackRock Inc each own about 1 percent of shares of CNOOC’s listed unit CNOOC Ltd, and together own roughly 4 percent of outstanding shares of SMIC, disclosures show.

Congress and the Trump administration have sought increasingly to curb the U.S. market access of Chinese companies that do not comply with rules faced by American rivals, even if that means antagonizing Wall Street.

On Wednesday, the U.S. House of Representatives passed a law to kick Chinese companies off U.S. stock exchanges if they do not fully comply with the country’s auditing rules, giving Trump one more tool to threaten Beijing with before leaving office.

By Alexandra Alper and Humeyra Pamuk