Tencent, Alibaba, JD.com US Investments Could Be Trade War Casualty

The Trump administration might be introducing a new initiative that would restrict investment in U.S. tech firms by Chinese companies, as well as stop tech exports to China.

According to The Wall Street Journal, the two-part plan is being designed by the U.S. Treasury and should be announced by the end of the week. The new rules would prohibit companies with at least 25 percent Chinese ownership from buying companies involved in “industrially significant technology.”

The initiative aims to prevent Beijing from moving ahead with its “Made in China 2025” initiative, which outlines a goal to become a global leader in 10 areas of technology, including information technology, aerospace, electric vehicles and biotechnology.

In addition, the National Security Council and the Commerce Department are crafting regulations for “enhanced” controls to prevent such technologies from being shipped to China.

“We’ve got trillions of dollars seeking our crown jewels of technology,” said White House trade adviser Peter Navarro last week. “There has to be a defense against that.”

If the initiative does come to fruition, there could be serious implications for both Chinese and U.S. companies.

Alibaba, JD.com and Tencent Holdings are the among the Chinese companies that have made significant investments in U.S. tech firms. Alibaba invested $200 million in Snap in 2015 and has also invested in ride-sharing company Lyft, virtual reality startup Magic Leap and online sports merchandise retailer Fanatics. And Tencent owns more than 15 percent of Snap.

“There are many, many Chinese companies that have invested in the U.S., but Alibaba is a very notable one: If they were not able to do so, that would really limit their ability to grow in the U.S. market,” said DA Davidson analyst Gil Luria.

Shares of all three companies were down on Monday (June 25), with Alibaba falling 5.3 percent, JD.com down 4 percent and Tencent dropping 3.5 percent.

“Any restrictions on investment will limit growth opportunities in the U.S.,” Luria added. “It’s not the primary area of focus right now for Alibaba or JD, but Alibaba has tried to keep a stable of investments in the U.S. for the time in the future when they try to grow in the U.S. That was part of their long-term plan.”

As for U.S. companies, limits on technology exports to China could hurt industries including semiconductors, automotive, robotics, aircraft and other manufacturing. It could also add uncertainty for many of the tech companies that do business in the region, including Hewlett Packard, IBM, Intel, Microsoft and Apple.

Terry Gou, the chairman of Apple assembler Foxconn, noted that “the biggest challenge we’re facing is the U.S.-China trade war, (but) what they are fighting is not really a trade war, it’s a tech war.”