Mon. Dec 6th, 2021

WASHINGTON—President Biden expanded a prohibition on Americans investing in Chinese companies with purported links to China’s military, adding more businesses to a blacklist that has angered Beijing and caused consternation among investors.

An executive order Mr. Biden signed Thursday brings to 59 the total number of Chinese companies banned from receiving American investment and shows how his administration is continuing some of the hard-line China policies left by former President

Donald Trump.

Many of the newly targeted companies are subsidiaries and affiliates of major state-owned companies and other businesses named on the earlier blacklist. They include a clutch of companies tied to the state-owned aerospace giant Aviation Industry Corporation of China and two financing affiliates of telecommunications gear-maker Huawei Technologies Co.

The new order prevents Americans from investing in those companies, with a 60-day grace period, until Aug. 2, before sanctions begin and a one-year period for Americans already invested in the firms—either directly or via mutual and index or other funds—to divest themselves.

The action is one of the firmest to date as the Biden administration conducts a broad review of China policy, including how to deal with tariffs and other trade measures taken by Mr. Trump. So far the administration has advanced few concrete actions against Beijing, though the U.S. recently joined allies in imposing sanctions against Chinese officials engaged in the mass incarceration of mainly Muslim ethnic minorities in the Xinjiang region.

Rising tensions between the U.S. and an increasingly powerful China have led to some concerns they could potentially escalate into armed conflict. But as WSJ’s Gerald F. Seib explains, there are more forces working against conflict rather than toward it. Photo illustration: Todd Johnson

“We see this is one action in the sort of broader sweep of steps we are taking to strengthen our approach to competing with China and to countering its actions that are against our interests and our values,” said one senior administration official in a briefing with reporters.

A Chinese foreign ministry spokesman, asked about the prospective change earlier Thursday, said that the Trump administration’s order was done with a “total disregard of facts” and that it “severely disrupted normal market rules and order.”

“The U.S. should respect the rule of law and the market, correct its mistakes, and stop actions that undermine the global financial market order and investors’ lawful rights and interests,” the spokesman,

Wang Wenbin,

told reporters in Beijing. He said Beijing will take measures to uphold the rights and interests of Chinese businesses.

The previous order, signed by Mr. Trump last November, ultimately created a list of 48 firms that was managed by the Defense Department and was directed at cutting off U.S. financing to suppliers and other companies with links to the People’s Liberation Army. Companies cited included some of China’s leading-edge technology firms, such as

Hangzhou Hikvision Digital Technology Co.

, a maker of video-surveillance systems, as well as a swath of state-run companies in engineering, shipbuilding, nuclear energy and other sectors.

The original Trump administration order, however, created confusion among investors and was hit with legal challenges. The New York Stock Exchange, for example, ordered, rescinded and then ordered the de-listing of the American depositary receipts of China’s three major telecommunications carriers.

Chinese smartphone maker Xiaomi Corp. won a reprieve from the blacklist, after a federal judge in March questioned the Pentagon’s legal rationale—including that Xiaomi’s founder once received a state award—for putting the company on the list.

Biden administration officials said the Trump administration order had been subject to lawsuits so the new version aims to provide “a solid legal foundation.”

Under the new order, the blacklist will be managed by the Treasury Department, which oversees many of the economic sanctions the U.S. employs and thus should be a more effective administrator of the investment ban, Biden administration officials said.

Thursday’s order also broadens the scope of targeted enterprises beyond those with military links to include companies in the surveillance technology sector, though at least two prominent such businesses, Hikvision and Huawei, were on the previous blacklist.

One issue that drew investor complaints under the Trump administration is whether the ban applied to subsidiaries of the blacklisted firms. Biden administration officials said the subsidiaries issue was a reason for expanding the list to 59. They suggested that list could be added to in the future.

“We were building this list to match the prohibition,” one senior official said.

Coming into office, Biden administration officials vowed to sustain an uncompromising approach to China and said they would improve on the Trump administration’s policy by working more closely with allies.

Despite appeals from Beijing, the Biden administration has held the line on Trump tariffs that cover about $250 billion in trade with China and on separate Commerce Department sanctions banning the transfer of U.S. technology to gear-maker Huawei and others. It has also followed the Trump administration in describing as genocide China’s program of detention and forced assimilation of Uyghurs and other mainly Muslim groups in Xinjiang.

More on Biden’s China Policy

Write to Gordon Lubold at Gordon.Lubold@wsj.com and Alex Leary at alex.leary@wsj.com

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