The U.S. Department of Defense (DOD) added on Tuesday 70 new entities to its list of Chinese military companies, including several major publicly traded companies. Their stock values dropped sharply following the designation.
The new additions include tech giant Tencent Holdings Ltd., battery maker CATL, and COSCO Shipping, China’s largest shipping company.
The annual list is mandated under Section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year 2021. According to the DOD press release, the list aims to counter the People’s Republic of China's (PRC) Military-Civil Fusion strategy, which allows the People's Liberation Army (PLA) to “acquire advanced technologies and expertise developed by PRC companies, universities, and research programs that appear to be civilian entities.” The 70 additions more than doubled the list, bringing the total to 134 entities.
Although companies added to the list do not face liable restrictions as a consequence of being designated, Section 805 of the NDAA for Fiscal Year 2024 prohibits the DOD from entering or renewing contracts for the procurement of goods or services directly or indirectly with such entities, starting June 30, 2026.
Being listed as a Chinese military company can still have reputational impact, deterring investment and other business dealings.
Shortly after the listing, Tencent’s stock value dropped by 10 percent, prompting the company to repurchase the most shares in almost two decades to offset the decline. Meanwhile, CATL shares fell by 6.1 percent on Tuesday in China. Tencent’s largest shareholder, the Dutch investment firm Prosus, also saw its stock drop by 7.3 percent on Monday in Amsterdam.
According to Kharon’s sanctioned securities data, 24 out of the 70 designated companies are issuers of debt and equity securities. Of those, 19 are held by multiple western funds, including major U.S. funds, at a total value worth billions of dollars.
Kharon’s data also shows that several publicly traded companies controlled by the recently listed entities have issued equity securities that are traded in major western funds. Those entities themselves were not included on the 1260H List, but are directly owned or controlled by the designated parties. The 1260H restrictions also apply to entities owned or controlled by the listed companies.
For instance, Hefei Jianghang Aircraft Equipment Co., Ltd., is a Chinese aerospace and defense company with a license for the research and production of weaponry, which is publicly traded and included in U.S. funds. It is controlled by AVIC Aerospace Systems Co., Ltd., which was added to the 1260H List on Tuesday.
The 1260H listing could also foreshadow other U.S. government designations. For example, the Comprehensive Outbound Investment National Security (COINS) Act, a bill introduced by Republican members of the House Select Committee on the Chinese Communist Party, proposes a biennial review to determine if entities on the 1260H List could qualify to be included on the U.S. Department of the Treasury's Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) List.
The NS-CMIC List prohibits the purchase or sale of publicly traded securities of listed companies. Although the COINS Act has not yet passed into law, it highlights how the 1260H List could be used in the future to target companies for further restrictions.
The new additions include tech giant Tencent Holdings Ltd., battery maker CATL, and COSCO Shipping, China’s largest shipping company.
The annual list is mandated under Section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year 2021. According to the DOD press release, the list aims to counter the People’s Republic of China's (PRC) Military-Civil Fusion strategy, which allows the People's Liberation Army (PLA) to “acquire advanced technologies and expertise developed by PRC companies, universities, and research programs that appear to be civilian entities.” The 70 additions more than doubled the list, bringing the total to 134 entities.
Although companies added to the list do not face liable restrictions as a consequence of being designated, Section 805 of the NDAA for Fiscal Year 2024 prohibits the DOD from entering or renewing contracts for the procurement of goods or services directly or indirectly with such entities, starting June 30, 2026.
Being listed as a Chinese military company can still have reputational impact, deterring investment and other business dealings.
Shortly after the listing, Tencent’s stock value dropped by 10 percent, prompting the company to repurchase the most shares in almost two decades to offset the decline. Meanwhile, CATL shares fell by 6.1 percent on Tuesday in China. Tencent’s largest shareholder, the Dutch investment firm Prosus, also saw its stock drop by 7.3 percent on Monday in Amsterdam.
According to Kharon’s sanctioned securities data, 24 out of the 70 designated companies are issuers of debt and equity securities. Of those, 19 are held by multiple western funds, including major U.S. funds, at a total value worth billions of dollars.
Kharon’s data also shows that several publicly traded companies controlled by the recently listed entities have issued equity securities that are traded in major western funds. Those entities themselves were not included on the 1260H List, but are directly owned or controlled by the designated parties. The 1260H restrictions also apply to entities owned or controlled by the listed companies.
For instance, Hefei Jianghang Aircraft Equipment Co., Ltd., is a Chinese aerospace and defense company with a license for the research and production of weaponry, which is publicly traded and included in U.S. funds. It is controlled by AVIC Aerospace Systems Co., Ltd., which was added to the 1260H List on Tuesday.
The 1260H listing could also foreshadow other U.S. government designations. For example, the Comprehensive Outbound Investment National Security (COINS) Act, a bill introduced by Republican members of the House Select Committee on the Chinese Communist Party, proposes a biennial review to determine if entities on the 1260H List could qualify to be included on the U.S. Department of the Treasury's Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) List.
The NS-CMIC List prohibits the purchase or sale of publicly traded securities of listed companies. Although the COINS Act has not yet passed into law, it highlights how the 1260H List could be used in the future to target companies for further restrictions.
