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The Trump administration is moving ahead with discussions around possible restrictions on portfolio flows into China, with a particular focus on investments made by U.S. government retirement funds, people familiar with the internal deliberations said.

The efforts are advancing even after American officials pushed back strongly against a Bloomberg News report late last month that a range of such limits was under review. Trump officials last week held meetings on the issue just hours after White House adviser Peter Navarro dismissed the report as “fake news,” and zeroed in on how to prevent U.S. government retirement funds from financing China’s economic rise, the people said.

The office of Larry Kudlow, director of the White House’s National Economic Council, convened a policy-coordination committee meeting last Tuesday, which also included officials from the National Security Council and the Treasury Department, the people added. An NEC spokesman declined to comment.

The news cast another cloud over trade talks expected to resume later this week between the world’s two largest economies. The yen strengthened against the dollar, U.S. stocks slumped for a second day and the yield on 10-year Treasuries touched the lowest level in about a month.

According to people familiar with the meeting, the administration’s focus is now on ways to further scrutinize index providers’ decision to add Chinese firms they consider a material risk for American investors. It’s still unclear what legal authority the White House would rely on to force major indexes to drop certain Chinese companies.

Pension Fund

At least one of the issues under consideration is time-sensitive. The Federal Retirement Thrift Investment Board in 2017 made a decision that by mid-2020 the international fund offered to workers in the government’s retirement savings plan would mirror the MSCI All Country World Index, which captures emerging markets, including China. The board is scheduled to meet Oct. 21.

Read more: A QuickTake on how China is opening its markets to the world

Some U.S. lawmakers and China hawks outside the government have pushed the board to reverse that decision and, if necessary, have the administration use executive power to protect U.S. government workers. They argue that Americans are harmed by channeling money into Chinese firms that are allegedly involved in human-rights violations and at the center of U.S. national security concerns.

The change would expose almost $50 billion in retirement assets of federal government employees, including members of the U.S. Armed Forces, to severe and undisclosed material risks associated with many of the Chinese companies listed on the index, opponents argue.

Blacklist

The Commerce Department on Monday put a number of Chinese entities -- including surveillance technology company Hikvision -- on an export blacklist that prohibits American firms from doing business with them unless they have a U.S. government license to do so. Hikvision, which is listed on the MSCI All Country World index, has been cited by Trump’s advisers as one of several Chinese companies that presents a threat to American investors.

In response on Tuesday, a Chinese official warned it would retaliate.

As with most policy discussions in the Trump administration, the president’s advisers have a range of opinions on the matter and haven’t agreed on a path forward yet, people close to the deliberations said. The officials do seem to agree, however, that there’s a political upside to engaging on the issue, the people added.

The White House is citing investor protection as the main reason for taking action and is carefully working to keep the matter separate from the ongoing trade negotiations that are set to resume in Washington this week.

“What we’re looking at is U.S. investor protections, transparency and compliance with a number of laws," Kudlow told reporters Monday. “There’s been complaints by the stock exchanges about this, the SEC has heard complaints, so we’ve opened up a study group to take a look at it, but we’re very early in our deliberations.”

Trade Talks

Any action on capital flows could undoubtedly be seen as a negotiating chip by President Donald Trump, who has in the past put other issues on the table in the talks with Beijing.

The Office of U.S. Trade Representative Robert Lighthizer isn’t playing a key role in the discussions around capital flows because they are separate from the trade talks, two of the people said. A spokesman for Lighthizer didn’t respond to a request for comment.

Lighthizer, however, is Trump’s point person in talks for a trade deal and any Chinese reaction to the investment limit plans would likely be taken to him in the context of the negotiations.

The options for investment limits that were initially discussed included forcing a delisting of Chinese companies from U.S. exchanges, imposing limits on investments in Chinese markets by U.S. government pension funds and putting caps on the value of Chinese companies included in indexes managed by U.S. firms, according to people familiar with and involved in the discussions.

Capital Controls

Since the deliberations first became public, administration efforts around delisting Chinese companies have been put on hold for now, the people said. A Treasury Department spokeswoman said Sept. 28 that option was not being contemplated “at this time.’’ She didn’t address any of the other possibilities being examined and declined to offer any further details.

Kudlow on Monday also told reporters delisting plans were “not on the table.”

While the value of the pension fund and the money it would funnel into China’s market next year is relatively small compared with the overall market and the value of Chinese companies listed on U.S. exchanges, the action has symbolic importance and could be interpreted as the first step in the U.S. government moving toward capital controls.

It’s also a domestic winner for the White House, which would be able to claim that it stopped American armed forces and government workers’ dollars from funding the rise of Chinese companies that Washington alleges have stolen intellectual property from U.S. firms to advance their technological lead over America. That fight is at the heart of Trump’s trade war with Beijing.

Some Trump officials are still pushing for limits on the Chinese companies included in stock indexes managed by U.S. firms, though it’s still an open question how that goal could be achieved. The hard-line advisers are concerned about indexes loading up on Chinese shares of companies that are subject to U.S. sanctions and therefore prohibited from doing business with the government. Those advisers consider it troubling that Americans aren’t made aware of that material risk, people briefed on the talks said.