Trump administration block on US investments into Chinese tech groups inflame tensions

Alibaba Group Holding Ltd. and Tencent Holdings Ltd. led a technology stocks selloff as the Trump administration considers barring investments in China’s two most valuable companies.

Alibaba fell more than 5% and Tencent dropped as much as 4.4% in Hong Kong trading on Thursday, tracking losses in their New York-listed securities. The State Department, Department of Defense and Treasury Department are among authorities involved in the deliberations, according to people with knowledge of the talks. The discussions focus in part on how such a move might affect capital markets, the Wall Street Journal reported earlier 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 $1.3 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% 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 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.”

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 U.S. capital in the final months of the Trump administration, adding to economic tensions as President-elect Joe Biden prepares to take over this month.

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In late December, the US also announced that subsidiaries of Chinese companies would also be included in the ban. The Trump administration in the same month also added Semiconductor Manufacturing International Corp, China’s largest chipmaker, and drone company DJI to an export blacklist. Alibaba faces challenges of its own in China, where it faces an antitrust investigation, and as regulators consider the future of its sister company Ant Group after cancelling its planned $37bn IPO in November. Jack Ma, the founder of both Alibaba and Ant, has not been seen in public since late October as regulators circle his businesses. Alibaba and Tencent declined to comment.