Chinese Stocks Slump As US Reportedly Weighs Options To Block Investments

The standoff between the U.S. and China seems to be reaching a tipping point.

Even as trade tensions between the two nations have been roiling the markets and economy for a while, the U.S. is reportedly considering an additional step. 

As part of a plan to limit U.S. investments in China, the White House is considering blocking all U.S. financial investments in Chinese companies, CNBC reported Friday, citing a source familiar with the matter.

Additionally, the White House is also looking at possibilities of limiting the investment of U.S. government pension funds in Chinese equities.

The plan is reportedly in the conception stage, with no concrete details finalized, including the timeframe for enaction. 

China Shares, ETFs Nosedive

U.S.-listed Chinese equities took a tumble on the news. 

Chinese e-commerce giant Alibaba Group Holding Ltd – ADR BABA was last seen sliding 5.39% to $165.57.

Chinese search engine Baidu Inc BIDU was losing 3.67% to $101.21. NetEase Inc NTES shares were slipping 5.79% to $257.52, and JD.Com Inc JD was losing 5.98% to $27.81.

OTC-listed TENCENT HOLDING/ADR TCEHY was slipping 3.02% to $40.72.

China ETFs were also in a sea of red, with the DIREXION SHS ET/DAILY FTSE CHINA BU YINN, iShares FTSE/Xinhua China 25 Index FXI and the ISHARES TR/MSCI CHINA ETF MCHI losing 4.28%. 1.53% and 2.52%, respectively.

Pressure Tactics?

As the reported move comes ahead of the resumption of the U.S.-China trade talks Oct. 10 in Washington, D.C., it is seen as a step by the U.S. to take control of the negotiation.

The two parties have locked horns with each other over the trade issue, engaging in verbal warfare and imposing sanctions on billions of dollars' worth of each other's goods. After several start-stop attempts, there has been a prolonged stalemate in negotiations.

Separately, Bloomberg also reported a potential move to stall U.S. portfolio investment flows into China and delist Chinese stocks from U.S. exchanges.

As of February, about 156 Chinese companies with a total market cap of $1.2 trillion were listed on the main U.S. exchanges, the Financial Times reported, quoting the U.S.-China Economic and Security Review Commission.

These measures couldn't have come at a worse time for China, as it is opening up its market for foreign investment.

Curbs Likely On Inbound Investments

Earlier this month, the U.S. Treasury proposed regulations that would give the Committee On Foreign Investment In the U.S., or CFIUS, more power to prevent foreign investment in areas where protection is needed. The law will take effect next year.

The regulations were drawn up to prevent China investing in U.S. technology and other valuable assets.

Even as the markets deliberate the pros and cons of these moves, the standoff between the world's first- and second-largest economies is bound to have ramifications for not only these two nations, but also for the global economy at large.

Related Links:

China Suffers Two Blows: High Oil Prices, Lowest Industrial Output Since 2002

Details Emerge On Apple's iPhone Strategy In China