WASHINGTON (REUTERS, BLOOMBERG) - The Trump administration is considering adding Alibaba Group Holding Ltd and Tencent Holdings Ltd to a blacklist of Chinese companies that are allegedly owned or controlled by the Chinese military, two people familiar with the matter told Reuters - a move that could inflame tensions with Beijing days before US President-elect Joe Biden takes office.
Defence Department officials, who oversee the designations, have not yet finalised plans to add the companies and are also discussing adding other Chinese firms, the sources said, speaking on condition of anonymity because the deliberations are private.
If added, Alibaba and Tencent would be subject to an executive order signed by US President Donald Trump in November, which bans US investors from buying shares of the blacklisted firms starting in November, 2021.
Tencent declined to comment and Alibaba did not immediately respond to requests for comment.
The discussions were first reported by the Wall Street Journal.
Shares in Alibaba Group Holding Ltd were down 5 per cent in morning trade on the Hong Kong Stock Exchange. Tencent Holdings Ltd shares were down 3 per cent. Alibaba's US-listed shares closed down just over 5 per cent on the news on Wednesday.
Imposing a ban on the two companies would mark the most dramatic escalation yet by President Donald Trump's administration, given the sheer size of the two firms and the difficulty unwinding positions.
At US$1.3 trillion (S$1.71 trillion), the combined market value of their primary listings is nearly twice the size of Spain's stock market, while the firms together account for about 11 per cent of the weighting for MSCI Inc.'s emerging markets benchmark.
"If the bans are implemented then it'd be a huge thing for the market," said Mr Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. "It's still too early to say. After the Biden administration starts, the policy could change again."
However, some investors expressed skepticism that Alibaba and Tencent would face long-term restrictions - given their worth and the likely reputational and financial hit to US stock markets.
"It's a very bad policy and there's enough money in Asia, lots and getting bigger, that one shouldn't force these companies out of America," said Mr Thomas Caldwell, chairman of Caldwell Investment Management in Toronto and an investor in the New York Stock Exchange. "Money and markets should be neutral."
Still, if implemented, the ban would further fray the relationship between the world's two largest economies, which have clashed over everything from Covid-19 to Hong Kong.
Authorities in Washington have been ramping up efforts to deprive Chinese companies of US capital in the final months of the Trump administration, adding to economic tensions as President-elect Joe Biden prepares to take over this month.
On Tuesday, Mr Trump signed an executive order banning transactions with eight Chinese software applications, including Ant Group's Alipay mobile payment app, escalating tensions with Beijing two weeks before Mr Biden takes office.
