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Thursday, April 15, 2021

Trump administration takes final swipes at China and its companies

Nine Chinese firms were added to the Pentagon's list of companies with alleged ties to the Chinese military, including planemaker Comac and phone maker Xiaomi Corp.

By: Reuters | Washington |
January 15, 2021 10:59:14 am
The US government has blacklisted Chinese smartphone maker Xiaomi Corp. (AP Photo/Vincent Yu, File)

The Trump administration in its waning days took another swipe at China and its biggest firms on Thursday, imposing sanctions on officials and companies for alleged misdeeds in the South China Sea and imposing an investment ban on nine more firms. The moves will further increase tensions with China, Washington’s strategic rival in Asia, days before President-elect Joe Biden takes office on Wednesday.

The Biden transition team did not immediately respond to a request for comment.

Executives of state-owned enterprises, officials of the Chinese Communist Party and military, along with oil giant CNOOC will face new restrictions for allegedly using coercion against states with rival South China Sea claims.

Senior US officials told reporters on a call Thursday the new CNOOC restrictions will not apply to crude oil, refined fuels and liquid natural gas and do not apply to existing joint ventures with CNOOC that do not operate in the South China Sea.

Nine Chinese firms were added to the Pentagon’s list of companies with alleged ties to the Chinese military, including planemaker Comac and phone maker Xiaomi Corp.

Those companies will be subject to a new US investment ban which forces American investors to divest holdings of the blacklisted firms by Nov. 11, 2021.

Shares in Xiaomi slumped over 8% in early Friday trading, against a 0.2% drop in the Hang Seng index, while CNOOC Ltd shares rose around 1%.

China says US exploiting state power

In its response, the Chinese embassy referred to Jan. 7 Foreign Ministry comments accusing Washington of “pinning political and ideological labels on economic and trade issues and exploiting its state power to crack down on foreign companies, under the pretext of national security.”

The United States has long opposed China’s extensive territorial claims in the South China Sea, a potentially resource-rich area that is also a strategic trade route.

Washington accuses Beijing of intimidating states such as Vietnam and the Philippines that have competing claims there.

China accuses Washington of trying to destabilize the region by sending warships and planes to the South China Sea.

“The United States stands with Southeast Asian claimant states seeking to defend their sovereign rights and interests, consistent with international law,” Secretary of State Mike Pompeo said in announcing the sanctions.

Pompeo said Washington was imposing visa restrictions on executives of Chinese state-owned enterprises and officials of the Chinese Communist Party and navy.

He said the sanctions were directed against those “responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of disputed outposts in the South China Sea, or use of coercion against Southeast Asian claimants to inhibit their access to offshore resources.”

The restrictions could also apply to immediate family members, he said.

‘Intimidates China’s neighbours’

The Commerce Department accused CNOOC of harassing and threatening offshore oil and gas exploration and extraction in the South China Sea, “with the goal of driving up the political risk for interested foreign partners, including Vietnam.”

President Donald Trump’s administration has kept up pressure in its final days, targeting what Washington sees as Beijing’s bid to use corporations as a means to harness civilian technologies for military purposes.

Commerce Secretary Wilbur Ross said CNOOC acted as “a bully for the People’s Liberation Army to intimidate China’s neighbors” and the Chinese military “continues to benefit from government civil-military fusion policies for malign purposes.”

Ross’s department added CNOOC to an “Entity List” that requires firms to be granted a special license before they can receive exports of high-tech items from US suppliers.

“Technologies for China’s offshore drilling are mature knowhows and CNOOC has overall very limited exposure to US expertise,” said Chen Weidong, Beijing-based founder of independent consultancy DFS Energy and previously an offhsore oil veteran. “Company may still need some components and equipment like logging tools from the U.S… but that is not hard to replace and China may need to catch up in manufacturing by itself.”

A second oil executive close to CNOOC said the offshore giant has increasingly turned to private local companies for services and the blacklist also could benefit engineering and equipment providers in Europe.

Chinese aviation firm Skyrizon was added to a Military End-User (MEU) List over its ability to develop military products including aircraft engines, restricting its access to US exports.

Aside from Comac and Xiaomi, the Pentagon added Advanced Micro-Fabrication Equipment Inc, Luokung Technology Corp, Beijing Zhongguancun Development Investment Center, GOWIN Semiconductor Corp, Grand China Air Co Ltd, Global Tone Communication Technology Co Ltd and China National Aviation Holding Co Ltd to the list.

Analysts said the selloff in Xiaomi shares is likely short-term.

“The market reaction is quite intuitive, given US investors have to liquidate their position,” said Kevin Chen, vice president at China Merchant Securities. “But I would think this volatility is probably more near-term, because fundamentally right now there is very little change to Xiaomi’s operation,” he said.

Representatives of the Chinese firms did not immediately respond to requests for comment.

But the Trump administration has pulled some punches against Beijing in its final days, as the Treasury Department has succeeded in easing hardline policies sought by other US agencies.

On Wednesday, it scrapped plans to blacklist Chinese tech giants Alibaba, Tencent and Baidu, amid pushback from Treasury Secretary Steven Mnuchin, who is seen as more dovish on China, sources said.

On Thursday, Treasury also issued a general license exempting US securities exchanges from the investment ban for transactions with newly blacklisted Chinese companies. The reprieve lasts a full year from the date of their addition to the blacklist, but the license does not clarify what happens after that period.

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