Mnuchin Told NYSE He Disagrees With Reversal on Chinese Stocks

Treasury Secretary Steven Mnuchin called NYSE Group Inc. President Stacey Cunningham Tuesday to express his disapproval with the exchange’s suprise decision to spare three major Chinese telecommunications companies from being delisted, according to two people familiar with the matter.

The exchange’s reversal caught some officials at the White House, Treasury and State departments off guard. It also sowed confusion among the regulators who had helped craft the order signed by President Donald Trump in November that requires American investors to unload Chinese businesses deemed as posing a threat to U.S. national security.

NYSE’s U-turn late Monday raises questions about whether the exchange acted hastily when it announced its decision to remove the companies -- China Mobile Ltd., China Telecom Corp. and China Unicom Hong Kong Ltd. -- on New Year’s Eve. Treasury’s Office of Foreign Assets Control issued opaque statements on the order that confounded investors and the Big Board on how soon action was required and which securities would be affected.

But NYSE’s reversal far from insulates the companies from eventually being delisted before November, when U.S. investors are required to divest their stakes, according to U.S. officials who spoke on the condition of anonymity.

A NYSE spokesperson wasn’t immediately available to comment and a Treasury spokeswoman declined to comment. Treasury released a document Monday that offered clarifications on the order hours before the exchange announced its decision to not delist the companies.

The ongoing risk of being delisted means financial markets are likely to face further uncertainty about which companies might be affected by Trump’s crackdown on China and when. China Mobile, China Telecom and China Unicom all rallied Tuesday, with investors concluding that the U.S. might be backing away from its aggressive approach.

NYSE gave no reason for its decision in a statement released during Asian trading hours, saying only that it had consulted “relevant regulatory authorities” about the U.S. restrictions on investing in Chinese companies.

The order signed by Trump is still scheduled to take effect on Jan. 11 -- nine days before he leaves office. An official working on Joe Biden’s transition declined to comment on whether the president-elect would reverse it.

If Biden leaves the order in place, U.S. investment firms and pension funds would be required to sell their holdings in companies linked to the Chinese military by Nov. 11. And if the U.S. determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.

Since the start of the coronavirus pandemic, the Trump administration has ramped up its attacks on China, imposing sanctions over human-rights abuses and the nation’s crackdown on Hong Kong. The U.S. has also sought to sever economic links and deny Chinese firms access to American capital.

Hard-liners in the administration -- among them Secretary of State Michael Pompeo and White House trade adviser Peter Navarro -- have warned investors for months that Chinese companies could be delisted from U.S. exchanges. As far back as August, a senior State Department official, Keith Krach, wrote a letter warning universities to divest from Chinese firms ahead of possible delistings.

One of their arguments was that the Chinese companies don’t adhere to internationally accepted accounting practices. The other argument, laid out in Trump’s November executive order, is that many Chinese companies have links to China’s military and pose a threat to American national security.

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