(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.
The Trump administration has issued a partial -- and qualified -- denial to the revelation that it is discussing imposing limits on U.S. investments in Chinese companies and financial markets as China vowed to continue opening its markets to foreign investment.
Bloomberg News on Friday reported that Larry Kudlow, the head of President Donald Trump’s National Economic Council, was leading deliberations inside the White House over what some hawks have labeled a potential “financial decoupling” of the world’s two largest economies.
The options discussed have included forcing a delisting of Chinese companies from U.S. exchanges, imposing limits on investments in Chinese markets by U.S. government pension funds and putting caps on the value of Chinese companies included in indexes managed by U.S. firms, according to people familiar with and involved in the discussions.
In a statement emailed to Bloomberg over the weekend, a spokeswoman for U.S. Treasury Secretary Steven Mnuchin said there were no current plans to stop Chinese companies from listing on U.S. exchanges.
“The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time,” Treasury spokeswoman Monica Crowley said. Crowley did not address any of the other options reported and declined to offer any further details of the discussions.
The response came after Friday’s initial Bloomberg report, which was later matched by other news organizations including the Financial Times and New York Times, unnerved markets in the U.S. and led to a slump in U.S.-listed Chinese firms. The S&P 500 Index closed down about 0.5% on Friday with the U.S. shares of companies like Alibaba (NYSE:BABA) Group Holding and Baidu Inc (NASDAQ:BIDU). tumbling. China’s main share indexes were little changed on Monday morning.
New Talks
The Trump administration is also getting ready to host Chinese Vice Premier Liu He and other senior officials for trade talks expected Oct. 10-11, just days before another threatened increase in U.S. tariffs on Chinese imports is due to take effect.
While both sides are eager to secure at least a short-term truce in what is now an 18-month-old trade war that has started to drag on the global economy, national security hawks inside the Trump administration continue to push for the conflict to be broadened.
The desire by some inside the White house for new controls on the flow of capital to China reflects the multi-dimensional economic war some Trump advisers are eager to wage against a rising economic rival. Beyond the tariffs on some $360 billion in imports from China imposed since last year, the Trump administration is pursuing strict new controls on exports of technology and has taken a skeptical approach to Chinese-backed investments in the U.S.
People close to the White House deliberations say they remain preliminary and that no final course of action has been decided on. They also insist the focus is on protecting U.S. investors from ending up unwittingly with stakes in Chinese companies that do not have the same auditing standards as U.S. listed firms.
One factor in that happening, they say, is the increasing presence of Chinese institutions on indexes such as MSCI’s benchmark emerging markets index and a Bloomberg Barclays (LON:BARC) bond index. Both are used by many institutional investors to decide the composition of their funds.
The growing Chinese presence on international indices reflects China’s economic rise and Beijing’s decision to continue opening up its financial markets to outside investors. Earlier this month, China lifted long-standing quantitative limits on foreign investment in mainland markets.
China on Sunday declared that the government would continue to open up its financial markets and encourage foreign investment.
“We will take further steps to promote high quality two-way financial opening, encourage foreign financial institutions and funds to invest in the domestic financial market to boost the competitiveness and dynamism of the domestic financial system,” read a summary from the eighth meeting of the Financial Stability and Development Committee posted on its website.