China Rebukes US Over 'Military' Labeling of Key Firms
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
us-china-trademilitary-company-list
Fazen Markets Editorial Desk
Collective editorial team · methodology
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China's Commerce Ministry announced on 13 June 2026 that it firmly opposes a US decision to label several prominent Chinese companies as 'military companies.' The designation, citing national security, represents Washington's latest move to restrict Chinese firms' access to American capital and technology. This expansion of the list adds to over 60 entities already sanctioned under this measure, which can freeze US assets and ban American investment.
The US first created the Communist Chinese Military Company List (CCMC) under the 1999 National Defense Authorization Act. A major expansion occurred in June 2021, when the Department of Defense added 59 firms, including telecom giant Huawei and chipmaker SMIC. That round triggered immediate index exclusions and forced US investors to divest holdings, impacting an estimated $45 billion in market capitalization. The latest action continues a pattern of using executive authority to address strategic competition outside of Congressional tariffs.
The current macro backdrop features elevated US 10-year Treasury yields above 4.2% and persistent inflation concerns, which typically dampen risk appetite for geopolitically sensitive assets. The trigger for this new designation appears linked to the upcoming US presidential election cycle, where candidates often adopt hardline positions on China. Recent advances in Chinese dual-use technologies, particularly in artificial intelligence and semiconductors, have intensified US scrutiny of corporate linkages to China's military-civil fusion strategy.
The number of Chinese entities on various US restriction lists has grown from 28 in 2018 to over 300 as of Q1 2026. The CCMC list itself now covers firms with a combined market capitalization exceeding $1.2 trillion. A 2025 study by the Peterson Institute for International Economics estimated that non-tariff barriers, including entity lists, now affect over $50 billion in annual US-China bilateral trade, up from $18 billion in 2020.
| Metric | Before 2021 Expansion | After 2026 Designation |
|---|---|---|
| Firms on CCMC List | ~44 | >70 |
| Estimated Affected Market Cap | $350 billion | $1.2+ trillion |
| Annual Trade Value Impacted | $18 billion | $50+ billion |
The iShares MSCI China ETF (MCHI) is down 4.2% year-to-date, underperforming the S&P 500's gain of 9.1%. The Hong Kong Hang Seng Index trades near 18,000, approximately 35% below its 2018 peak. Chinese corporate bond spreads for technology and industrial firms have widened by 15-25 basis points since the start of June, according to ICE BofA indices.
Directly targeted firms like Huawei and SMIC face renewed pressure, but secondary effects will ripple through supply chains. US semiconductor capital equipment providers Applied Materials (AMAT) and Lam Research (LRCX) could see reduced sales to restricted Chinese fabs, potentially shaving 2-4% from their annual revenue growth projections. Conversely, non-Chinese alternative suppliers in South Korea and Taiwan, like Samsung Electronics (005930.KS) and TSMC (TSM), may gain incremental market share.
A significant risk is accelerated decoupling, which could increase global inflation by fragmenting efficient supply chains. A counter-argument holds that targeted sanctions are more effective than broad tariffs, minimizing collateral damage to US consumers. However, history shows Chinese firms often pivot to domestic or non-US suppliers, diluting long-term effectiveness.
Institutional positioning shows a net short bias on the MCHI ETF, with short interest rising 18% in the past month. Flow data indicates capital rotation into ASEAN markets, with ETFs for Vietnam (VNM) and India (INDA) seeing increased inflows. Hedge funds are actively shorting the Chinese yuan (USD/CNH), betting on further capital outflow pressures.
The next major catalyst is the 15 July 2026 deadline for US investors to complete divestment from any newly listed firms. China’s potential retaliatory measures, which could target US agricultural or aircraft imports, are a key unknown. Markets will monitor the US Treasury's semi-annual currency report on 20 October 2026 for any official designation of China as a currency manipulator, which would escalate tensions.
Critical levels to watch include the USD/CNH exchange rate breaching 7.30, a level last seen in 2007, which could trigger PBOC intervention. For the Hang Seng Index, a sustained break below 17,500 would signal a new leg down in investor sentiment. The 10-year US Treasury yield holding above 4.5% would maintain pressure on emerging market assets, including China.
The designation prohibits US persons and institutions from purchasing or trading in the securities of listed companies. It forces index providers like MSCI and FTSE Russell to remove the firms from their benchmark indices, triggering automatic selling by passive funds. Affected companies also lose access to US debt markets and may face secondary sanctions on non-US entities that do business with them, severely hampering global operations.
The CCMC list is distinct. The Entity List, managed by the Commerce Department, restricts exports of US technology. The Specially Designated Nationals (SDN) list, run by Treasury, is more severe, freezing all US-based assets and prohibiting any transactions. The military company list sits between them, focusing on investment bans rather than trade or asset freezes. It is a tool of financial containment rather than operational crippling.
Analysis of the June 2021 CCMC expansion shows an initial sharp sell-off. The MSCI China Index fell 8% in the following month. However, within six months, many unaffected sectors recovered, though targeted tech sub-sectors remained depressed, underperforming the broader index by an average of 12%. Long-term performance is more tied to domestic Chinese economic policy and US Federal Reserve rate cycles than to isolated sanction events.
The US-China financial decoupling is accelerating through targeted investment bans, raising costs and volatility in global supply chains.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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