China Threatens Sweeping Blacklist of Firms After Huawei Ban

Date: Friday, May 31, 2019
Source: American Journal of Transportation

China said it will establish a list of so-called “unreliable” entities it says damage the interests of domestic companies, a sweeping order that could potentially affect thousands of foreign firms as tensions escalate after the U.S. blacklisted Huawei Technologies Co.

China will set up a mechanism listing foreign enterprises, organizations and individuals that don’t obey market rules, violate contracts and block, cut off supply for non-commercial reasons or severely damage the legitimate interests of Chinese companies, Ministry of Commerce spokesman Gao Feng said. “Necessary measures will be taken” against those on the list, he said, adding that specifics would be released soon.

The U.S. government has moved to curb Huawei’s ability to sell equipment in the U.S. and buy parts from American suppliers, potentially crippling one of China’s most successful—but controversial—global companies. That step has helped broaden the tariff war into a wider confrontation between China and the U.S., at a time when negotiations between the two sides have broken down.

The vague wording of the Chinese state media report opens the door for Beijing to target a broad swathe of the global tech industry—from U.S. giants like Alphabet Inc.’s Google, Qualcomm Inc. and Intel Corp. to even non-American suppliers that have cut off China’s largest technology company. Those run the gamut from Japan’s Toshiba to Britain’s Arm.

Shares in Apple, Qualcomm, and Intel fell more than 1% in pre-market trading. U.S. equity futures more broadly slumped as the trade-war rhetoric heated up.

“Surely companies that have announced cutting supplies to Huawei, such as Panasonic and Toshiba, would be under threat,” said Michelle Lam, Greater China economist at Societe Generale SA in Hong Kong. “It could be very damaging to multinational companies.’’

The tariff conflict is set to ratchet up this weekend as the U.S. locks down higher duties on about $200 billion of goods arriving from China and Beijing implements its own retaliation. Talks between the two sides stalled after U.S. President Donald Trump accused China of backsliding on a deal and Chinese officials argued that the Americans raised their demands.

‘National Security’

The list will also target companies that “pose a threat or potential threat to national security,” the Commerce Ministry’s Gao said. China is setting up the list “to protect international economic and trade rules and the multilateral trading system, to oppose unilateralism and trade protectionism, and to safeguard China’s national security, social and public interests,” he said.

China said this week the next move in resolving trade talks must come from the U.S., as Trump said he’s in no hurry to make a deal. Trump and Chinese President Xi Jinping are expected to meet again at the end of June for the G-20 summit, though some analysts are pessimistic about a quick solution.

China’s blacklist threat “sends pressure to Washington as the ban (on Chinese companies) from the U.S. side goes wider,” said James Yan, a Counterpoint Research analyst. “China may pick a few ‘bad examples’ to punish, but it’s unlikely to hit everyone in the supply chain.”

Trade Weapons

The U.S. could also potentially add more Chinese firms including Zhejiang Dahua Technology Co. and Hangzhou Hikvision Digital Technology Co. to the list that bars them from U.S. components or software, people familiar said earlier.

Chinese state media has floated other potential retaliatory measures in recent days. Bloomberg News reported Friday that Beijing has readied a plan to restrict exports of rare earths to the U.S. if needed, according to people familiar with the matter. The measures would likely focus on heavy rare earths, a sub-group of the materials where the U.S. is particularly reliant on China.

“This retaliation with Chinese characteristics is unlikely to sway the Trump Administration,’’ said Jude Blanchette, China practice lead at Crumpton Group in Arlington, Virginia, and a former Conference Board researcher in Beijing. “The only certain outcome of this hastily-created ‘entity list’ is to further convince foreign firms that the political and regulatory risk of operating in China continues to rise.”

 

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