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Trump’s pension fund ban could split global markets


By ordering the main US federal government pension fund to shun Chinese stocks, President Trump has opened a new front in America’s wide-ranging confrontation with China that risks fragmenting global capital markets.

Until now the Sino-US clash has mainly been over trade and technology. Trump, eager to demonise Beijing to help his re-election chances, has slapped tariffs on imports from China, tightened curbs on the export of sensitive goods and banned US firms from doing business with Huawei, China’s leader in 5G mobile telecommunications. Washington has also made it harder for Chinese firms to put down roots in the US: new Chinese investments in America plunged to just $200 million in the first quarter, down from $2 billion a quarter in 2019.

The result has been a decoupling between the world’s first- and second-biggest economies. Even before the coronavirus pandemic broke out, globalisation was giving way to the bifurcation of the global economy into two main camps: one led by the US, the other by China.

Trump is now accelerating this process by expanding his campaign against China to the capital markets. The president this week ordered the Federal Retirement Thrift Investment Board to drop its investment in an MSCI index that includes Chinese companies under US sanctions and export bans.

On the face of it, the move is of limited significance. Potential flows of up to $6 billion into China could be affected. But the signalling effect of the ban is much greater, especially as Trump explicitly blames China for covering up the outbreak of Covid-19. Tellingly, as the US death toll from the disease rises fast, calls from both the administration and Congress to punish Beijing are multiplying.

Before the storm: Chinese Vice Premier Liu He and the US President sign the first phase of a trade deal in the White House on January 15, 2020. More than 87,000 Americans have died of Covid-19 since then. Photo: AFP

Sanctions possible for Covid-19 ‘cover-up’  

The US national security adviser, Robert O’Brien, and Trump’s national economic adviser, Larry Kudlow, warned against the investment of federal retirement dollars in Chinese firms given “the possibility that future sanctions will result from the culpable actions of the Chinese government” over the spread of the virus.

Those sanctions could be financial as well as diplomatic. A bill introduced by Senator Lindsey Graham, a close ally of Trump, envisages curbs on loans to Chinese businesses by US institutions and a ban on Chinese firms from listing on US stock exchanges if China does not allow a full outside investigation into the cause of the outbreak.

The push to cut Chinese firms off from Wall Street is gathering momentum from another source – an accounting scandal at Nasdaq-listed Luckin Coffee, which admitted last month that most of its 2019 revenue had been fabricated. The firm was worth $12 billion before it fell to earth.


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