A quick thread on the latest U.S. government actions taken to ban investments in China companies financing China’s military.

In the last 6 months, the U.S. Commerce department flagged & sanctioned a number of Chinese companies for activities ranging from ties to the military & weapons of mass destruction, human rights abuses in Xinjiang, or building military islands in the South China Sea.

The Executive Order from the Trump administration is notably NOT from the Commerce Department, suggesting to us concerns a Biden administration would have taken a different approach.

We do not expect a Biden administration to quickly reverse Trump’s latest executive order but rather a long legal process similar to the recent WeChat/TikTok ban—which is still ongoing in the court system.

What do the sanctioned companies and those banned for investment in the Executive Order have in common? Most are state-owned enterprises (SOEs) and in the manufacturing, construction, energy, and telecommunication infrastructures sectors, less on consumer sectors.

The non-state-owned enterprises on these lists are mostly listed on Chinese mainland stock exchanges and tend to be less owned by foreign investors. These companies typically are in leading technology sectors like image recognition and artificial intelligence.

U.S. and China will be in competing relations over the coming decades and we expect this is not the last we will hear for increasing tensions. The word “finance” in the latest executive order suggests SOE banks are future targets.

One way to seek to mitigate the risks from these actions is to focus on the non-state companies --- like WisdomTree did with the launch of ex-state-owned enterprises ETFs: $CXSE and $XSOE. https://bit.ly/3kDk1tz  https://bit.ly/3f5A2Hu