Why Has the US Blacklisted CNOOC?
Dec 09 2020
Shares in CNOOC have plummeted after the state-controlled energy company was linked to Chinese firms with military connections. One of the largest crude oil and natural gas producers in China, the China National Offshore Oil Corporation (CNOOC) relies heavily on investment from the United States. However following accusations of links with the Chinese military, the US government has imposed sanctions banning all citizens and companies from trading shares in the company. After being blacklisted by the United States shares in CNOOC slumped, falling by 13p% to settle at around US$1.06 per share.
White House issues executive order
The executive order was issued directly from the White House, with the Trump administration asserting it reflects the country’s zero-tolerance policy for companies associated with the People’s Liberation Army. “Through the national strategy of military-civil fusion, the PRC increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities,” said Trump in a statement.
“At the same time, those companies raise capital by selling securities to United States investors that trade on public exchanges both here and abroad, lobbying United States index providers and funds to include these securities in market offerings, and engaging in other acts to ensure access to United States capital.”
Responding to the sanctions, CNOOC said it was “shocked” and insists the executive order is based on “false and inaccurate” data. CNOOC joins more than 30 other Chinese-owned companies on the blacklist, including state-controlled Norinco, ChemChina and Sinochem.
Analysts warn bans could backfire on US
While the ban was interpreted as a power move by the United States, some analysts warn the executive order could backfire on American investors and major firms. Currently, around 16% of CNOOC shares are held by US investors. The severe drop in value has already has a negative impact on portfolios and will continue to do so. CNOOC also co-owns major US oil and gas fields operated by partners such as ExxonMobil Corp. Again, the blow to the company’s share prices and reputation could have a domino effect on American producers.
Furthermore, CNOOC relies heavily on American-owned equipment and technology. As a result, a slump in productivity and profitability translates into domestic losses for American investors and businesses. Retaliation is also a major concern, with analysts warning CNOOC could disrupt projects currently underway in China, Vietnam and other Asian countries.
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