S. 2046: No China in Index Funds Act

This bill, titled the No China in Index Funds Act, aims to prohibit index funds from investing in companies based in China. Here's a breakdown of the main points outlined in the bill:

Definitions

The bill provides definitions for key terms, including:

• Chinese company: A company that is either incorporated in China, has most of its assets or employees in China, is controlled by the Chinese government, or derives significant value from Chinese companies.
• Index fund: An investment vehicle designed to track a specific index of securities or part of such an index.
• Investment company: Defined as in the Investment Company Act of 1940, referring to companies that pool money to invest in securities.

Main Prohibition

The bill states that:

• Index funds are not allowed to invest in any Chinese companies.
• If an index fund already had investments in Chinese companies on the date the bill becomes law, it is granted a 180-day period to divest, during which it may continue holding those investments without penalty.

Civil Penalties

Individuals or entities that violate the investment prohibition could face civil penalties. The penalties would include:

• A fine of up to $250,000.
• A fine equal to twice the amount of the transaction that led to the violation, whichever is greater.

Regulatory Authority

The Securities and Exchange Commission (SEC) is given the authority to create rules to enforce the bill's provisions.

Summary

In summary, the No China in Index Funds Act would establish clear restrictions on index funds, barring them from investing in Chinese companies and adding penalties for violations. The intent is to restrict U.S. investment in sectors within China deemed sensitive or inappropriate under current U.S. policies.

Relevant Companies

• BABA (Alibaba Group Holding Limited): As a major e-commerce and technology company in China, Alibaba would be directly impacted as index funds would no longer be able to invest in it.
• TCEHY (Tencent Holdings Limited): This prominent technology and entertainment company could see a reduction in U.S. investments from index funds as they would have to divest.
• BIDU (Baidu, Inc.): Known as a leading search engine and technology firm in China, Baidu would also fall under the restrictions of this bill.