Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies
The order declares a national emergency and, under the International Emergency Economic Powers Act, prohibits all U.S. persons from buying or trading publicly listed securities of companies the Defense Department has designated as Communist Chinese military companies, with the prohibition taking effect January 11, 2021.
It is the first executive order to invoke IEEPA to restrict U.S. investment in Chinese-listed securities, directly targeting capital flows that the order finds fund the PRC's military and intelligence modernization.
What this order does
What it orders
The order declares a national emergency and prohibits U.S. persons from purchasing or trading publicly listed securities — including derivatives and instruments designed to provide exposure to those securities — of any company designated as a Communist Chinese military company. For companies already on the Defense Department's list, the prohibition takes effect January 11, 2021. For companies added to the list after the order is signed, the prohibition takes effect 60 days after the determination. Existing holders are given a wind-down window: until November 11, 2021 for already-listed companies, or 365 days from the determination date for newly listed ones, to divest their holdings.
The order authorizes the Secretary of the Treasury — after consulting Defense, State, and the Director of National Intelligence — to issue rules, regulations, and licenses implementing the prohibitions. It also empowers the Secretary of Defense to add or remove companies from the list and the Secretary of the Treasury to publicly designate subsidiaries or companies meeting statutory criteria. Evasion and conspiracy to evade the prohibitions are independently prohibited.
Who it affects
All U.S. citizens, permanent residents, U.S.-organized entities (including foreign branches), and any person in the United States who holds or trades securities of designated Communist Chinese military companies — including retail investors, mutual funds, index funds, and institutional investors with exposure to those securities.
Why it matters
U.S. investors holding shares in any designated company must divest within the applicable wind-down window or face legal liability. Index funds and retirement accounts tracking benchmarks that include these securities face pressure to restructure holdings. The order can expand as the Defense Secretary and Treasury Secretary add new companies to the list.
What must happen and when
How the order is supposed to work
Treasury leads implementation: it can write rules, issue licenses for otherwise-prohibited transactions, and publicly designate additional companies. Each new designation triggers a 60-day clock before trading is banned and a 365-day divestiture window. Defense can expand or contract the list at any time, and each addition restarts the clock. Treasury must consult Defense, State, and the DNI before granting any license. Congress receives recurring reports on the national emergency under IEEPA and National Emergencies Act reporting requirements.
Actions and deadlines
- Prohibit U.S. persons from transacting in securities of already-listed Communist Chinese military companies
- Allow divestiture of pre-existing holdings in already-listed companies; all such sales must conclude
- Prohibit U.S. persons from transacting in securities of newly designated companies, beginning 60 days after each determination
- Allow divestiture of pre-existing holdings in newly designated companies; all such sales must conclude within 365 days of each determination
- Secretary of Treasury to promulgate rules and regulations implementing the order's prohibitions and licensing procedures
- Submit recurring and final reports to Congress on the declared national emergency