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Biden Administration Recalibrates Executive Order Prohibiting Investments in Publicly Traded Securities of Certain Chinese Companies

June 7, 2021


On June 3, 2021, President Biden issued an executive order recalibrating restrictions originally imposed by the Trump Administration on certain investments in Chinese communist military companies. See prior alerts: President Trump Issues Executive Order Prohibiting US Investments in Companies with Ties to the Chinese Military; Unfinished Business and Potential New Directions: The Biden Administration Faces Many Decisions in Addressing Trump Administration Measures Targeting China and other National Security Threats). The Executive Order on Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China (“the EO”) places restrictions on 59 entities1 and authorizes the Secretary of the Treasury to impose restrictions on investments in publicly traded securities of Chinese entities operating in the defense and surveillance technology sectors. Through this action and others (see prior alerts Commerce Department’s New Technology Supply Chain Rules Leave Many Unanswered Questions and FCC Lists Certain Chinese Telecom Equipment as National Security Risk), the Biden Administration continues to signal an aggressive national security-driven posture towards China.

Restrictions Targeting Defense and Surveillance Sectors

Similar to its predecessor, Executive Order 13959, the EO prohibits the “purchase or sale of any publicly traded securities, or any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities” of any entity listed in the EO, as well as subsequent designations consistent with the EO’s scope. While Executive Order 13959 focused only on “Communist Chinese Military Companies,” the new EO focuses on any entity that has operated or is operating in two Chinese sectors: the defense (and related material) sector, and the surveillance sector.

The restrictions on the 59 entities listed in the Annex to the EO are effective as of August 2, 2021. The restrictions for any entities subsequently designated by the Secretary of the Treasury would go into effect 60 days after their designation. The EO also allows United States persons one year after an entity is designated to purchase or sell targeted securities solely to effect the divestment, in whole or part, of such securities. For entities designated in the EO, the deadline for divestment is June 3, 2022.


The source for the list of communist Chinese military companies targeted by Executive Order 13959 was the Department of Defense’s so-called Section 1237 List, which originated from a reporting obligation in the 2019 National Defense Authorization Act. The decision to reframe the categories of companies subject to investment restrictions may have been influenced by recent successful court challenges to the Section 1237 List that alleged that the Department of Defense (“DOD”) failed to provide adequate reasoning and evidence to support its designations. Notably in this regard, the EO gives the Secretary of the Treasury primary responsibility for new designations, with DOD in an ancillary role.

The changes also have the effect of bringing the designations in line with other bi partisan national security concerns related to China. In addition to reflecting the concerns about the threat posed by the Chinese military-industrial complex, the EO also reflects concerns about the use of surveillance technology to repress human rights in China.

With the Section 1237 List no longer the basis for designations, a number of companies on that list with no apparent ties to the defense and surveillance sector are no longer designated, including Sinochem and Chem China.

Despite the broad sectoral approach of the EO, the restrictions themselves remain narrowly targeted. The restrictions in the EO are limited to the purchase, selling, or otherwise trading in publicly held securities of the designated entities. The EO does not otherwise prohibit United States persons from doing business with the designated entities. Nevertheless, the EO is another example of the Biden Administration’s efforts to ensure that US companies do not facilitate activities in China that are inconsistent with US national security interests, putting companies that operate in both the United States and China on notice of the importance of monitoring future Biden Administration and Congressional initiatives targeting China.

1 Aero Engine Corporation of China; Aerospace Ch UAV Co., Ltd; Aerospace Communications Holdings Group Company Limited; Aerosun Corporation; Anhui Greatwall Military Industry Company Limited; Aviation Industry Corporation of China, Ltd.; Avic Aviation High-Technology Company Limited; Avic Heavy Machinery Company Limited; Avic Jonhon Optronic Technology Co., Ltd.; Avic Shenyang Aircraft Company Limited; Avic Xi’an Aircraft Industry Group Company Ltd.; Changsha Jingjia Microelectronics Company Limited; China Academy of Launch Vehicle Technology; China Aerospace Science and Industry Corporation Limited; China Aerospace Science and Technology Corporation; China Aerospace Times Electronics Co., Ltd; China Avionics Systems Company Limited; China Communications Construction Company Limited; China Communications Construction Group (Limited); China Electronics Corporation; China Electronics Technology Group Corporation; China General Nuclear Power Corporation; China Marine Information Electronics Company Limited; China Mobile Communications Group Co., Ltd.; China Mobile Limited; China National Nuclear Corporation; China National Offshore Oil Corporation; China North Industries Group Corporation Limited; China Nuclear Engineering Corporation Limited; China Railway Construction Corporation Limited; China Satellite Communications Co., Ltd.; China Shipbuilding Industry Company Limited; China Shipbuilding Industry Group Power Company Limited; China South Industries Group Corporation; China Spacesat Co., Ltd.; China State Shipbuilding Corporation Limited; China Telecom Corporation Limited; China Telecommunications Corporation; China Unicom (Hong Kong) Limited; China United Network Communications Group Co., Ltd.; Cnooc Limited; Costar Group Co., Ltd.; Cssc Offshore & Marine Engineering (Group) Company Limited; Fujian Torch Electron Technology Co., Ltd.; Guizhou Space Appliance Co., Ltd; Hangzhou Hikvision Digital Technology Co., Ltd.; Huawei Investment & Holding Co., Ltd.; Huawei Technologies Co., Ltd.; Inner Mongolia First Machinery Group Co., Ltd.; Inspur Group Co., Ltd.; Jiangxi Hongdu Aviation Industry Co., Ltd.; Nanjing Panda Electronics Company Limited; North Navigation Control Technology Co., Ltd.; Panda Electronics Group Co., Ltd.; Proven Glory Capital Limited; Proven Honour Capital Limited; Semiconductor Manufacturing International Corporation; Shaanxi Zhongtian Rocket Technology Company Limited; Zhonghang Electronic Measuring Instruments Company Limited

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O'Melveny partner licensed to practice law in the District of Columbia, John Dermody, an O'Melveny counsel licensed to practice law in California and the District of Columbia, and David J. Ribner, an O'Melveny counsel licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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