UPDATE 2-Trump administration adds China's SMIC and CNOOC to Defense blacklist

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By Alexandra Alper and Humeyra Pamuk

WASHINGTON, Dec 3 (Reuters) - The Trump administration on Thursday added China's top chipmaker SMIC and oil giant CNOOC to a blacklist of alleged Chinese military companies, a move likely to escalate tensions with Beijing before President-elect Joe Biden takes office.

The Department of Defense designated a total of four additional companies as owned or controlled by the Chinese military, including China Construction Technology Co Ltd and China International Engineering Consulting Corp.

The move, first reported by Reuters on Sunday, brings the total number of companies blacklisted to 35. While the list did not initially trigger any penalties, a recent executive order issued by President Donald Trump will prevent U.S. investors from buying securities of the blacklisted firms starting late next year.

The Chinese embassy in Washington, Semiconductor Manufacturing International Corp (SMIC) and China National Offshore Oil Corp (CNOOC) did not immediately respond to requests for comment.

Shares of CNOOC's listed unit CNOOC Ltd fell by nearly 14 percent following the Sunday report.

SMIC, which relies heavily on equipment from U.S. suppliers, was already in Washington's crosshairs. In September, the U.S. Commerce Department informed some firms they needed to obtain a license before supplying goods and services to SMIC after concluding there was an "unacceptable risk" that equipment supplied to it could be used for military purposes.

The expanded blacklist is seen as part of a bid to cement outgoing Republican Trump's tough-on-China legacy and to box incoming Democrat Biden into hardline positions on Beijing amid bipartisan anti-China sentiment in Congress.

The measure is also part of a broader effort by Washington to target what it sees as Beijing's efforts to enlist corporations to harness emerging civilian technologies for military purposes.

The list of "Communist Chinese Military Companies" was mandated by a 1999 law requiring the Pentagon to compile a catalog of companies "owned or controlled" by the People's Liberation Army, but DOD only complied in 2020. Giants like Hikvision, China Telecom and China Mobile were added earlier this year.

In November, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by prohibiting U.S. investors from buying securities of the blacklisted companies from November 2021.

Top U.S. asset managers Vanguard Group and BlackRock Inc each own about 1% of shares of CNOOC's listed unit CNOOC Ltd, and together own roughly 4% of outstanding shares of SMIC, disclosures show.

Congress and the administration have sought increasingly to curb the U.S. market access of Chinese companies that do not comply with rules faced by American rivals, even if that means antagonizing Wall Street.

On Wednesday, the U.S. House of Representatives passed a law to kick Chinese companies off U.S. stock exchanges if they do not fully comply with the country's auditing rules, giving Trump one more tool to threaten Beijing with before leaving office. (Reporting by Alexandra Alper and Humeyra Pamuk Editing by Chris Reese, Diane Craft and Tom Brown)