White House weighs limits on US portfolio flows into China

Trump administration officials are discussing ways to limit US investors’ portfolio flows into China in a move that would have repercussions for billions of dollars in investment pegged to major indexes, according to people familiar with the internal deliberations.The discussions are occurring as Washington and Beijing negotiate a potential truce in their trade war that’s rattled the world’s two biggest economies and investors for more than a year.They also come as China is removing limits on foreign investment in its financial markets.A US crackdown on capital flows would therefore expose a new pressure point in the economic dispute and cause disruption well beyond the hundreds of billions in tariffs the two sides have levied against each other.Among the options the Trump administration is considering: delisting Chinese companies from US stock exchanges and limiting Americans’ exposure to the Chinese market through government pension funds.Exact mechanisms for how to do so have not yet been worked out and any plan is subject to approval by President Donald Trump, who has given the green light to the discussion, according to one person close to the deliberations.Trump officials are also examining how the US could put limits on the Chinese companies included in stock indexes managed by US firms, three of the people said, although it’s not clear how that would be done.More Chinese companies in recent years have been added to major indexes that a broad array of investors have access to.For instance, hundreds of Chinese businesses have been added into the MSCI Inc’s indexes since last year – raising questions from Florida Republican Senator Marco Rubio and others on Capitol Hill who are advocating for stronger investment restraints and greater scrutiny for Chinese companies in stock indexes and US pension funds.The White House has been discussing its plans with Rubio. It is now considering whether to back legislation he put forward over the summer that provoked much debate over the issue of how to protect US investors with funds allocated into what are often opaque Chinese companies.The White House has not had any discussions with the Chinese government over the issue, said one person close to the administration.It also wants to keep any action isolated from the broader trade negotiations now underway, the person said. But high on the list of US concerns is the unusual influence the Chinese government has over private sector companies and restrictions Beijing places on the release of some financial information of even listed Chinese firms.The fresh momentum behind the effort is partly due to a push from lawmakers to demand reciprocity with Beijing and a pending deadline for the government’s main retirement savings fund – administered by the Federal Retirement Thrift Investment Board – to channel billions of dollars into Chinese companies next year, according to several people involved in the discussions.