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Thursday, Oct 01, 2020

China fights back on trade war – ready to place US giants on "unreliable entity list"

China fights back on trade war – ready to place US giants on "unreliable entity list"

China's latest moves indicate a toe-to-toe strategy between the world's two largest economies, from political to economic ends, being in full play, experts said.
China is ready to take a series of countermeasures against a US plan to block shipments of semiconductors to Chinese telecom firm Huawei, including putting US companies on an "unreliable entity list," launching investigations and imposing restrictions on US companies such as Apple, and halting purchase of Boeing airplanes, a source close to the Chinese government told the Global Times.

The potential move, the second time within two days that China has released message of hitting back against the US, also the very first time government source noted to target specific US companies, is a result of Washington's recent malicious attacks on China, which ignited a tsunami of anger among Chinese officials and in the business circle. China is mulling punitive countermeasures against US individuals and entities over COVID-19 lawsuits due to the abuse of litigation by the US side, sources close to the matter told the Global Times previously.

Senator Ben Sasse (R., Neb.) welcomed the new sanctions on Friday.

“Let’s cut to the chase: China’s main export is espionage, and the distinction between the Chinese Communist Party and Chinese ‘private-sector’ businesses like Huawei is imaginary,” Sasse said in a statement. “Huawei’s supply chain depends on contracts with American companies and the Commerce Department ought to take a careful look at how we can effectively disrupt our adversary.”

The Trump administration on Friday moved to block shipments of semiconductors to Huawei from global chipmakers. The US Commerce Department said it was amending an export rule and the Entity List to "strategically target Huawei's acquisition of semiconductors that are the direct product of certain US software and technology," according to a statement on its website.

"China will take forceful countermeasures to protect its own legitimate rights," if the US moves forward with the plan to change its rules and bar essential suppliers of chips, including Taiwan-based TSMC, from selling chips to Huawei, the source told the Global Times in an exclusive interview.

The measures include adding related US companies to China's "unreliable entity list," imposing restrictions on or launching investigations into US companies like Qualcomm, Cisco and Apple according to Chinese laws like Cybersecurity Review Measures and Anti-monopoly Law, and suspending the purchases of Boeing airplanes, according to the source.

The US companies mentioned, such as Apple, Qualcomm, Cisco and Boeing, are all highly dependent on the Chinese market.

"China should implement these countermeasures to the extent that the US dare not ask for a mile after being given an inch," He Weiwen, a former senior trade official and an executive council member of the China Society for World Trade Organization Studies, told the Global Times.

He advised China to carry out "thorough investigations into relevant US companies and "let them feel the pain."

Punitive measures targeting large-sized US companies like Qualcomm, Cisco and Apple are the "nuke bomb," according to analysts.

"China will launch rounds of endless investigations on those firms, just like swords hanging over their head. It will dampen investors' confidence and squeeze their income in the Chinese market," said an insider, who preferred to remain anonymous.

In the first quarter of 2020, China's revenue made up 14.8 percent of Apple's total revenue.

Analysts also noted that if chips made by those firms cannot be sold to the Chinese market, one of their most important sources of revenue, it would be extremely difficult for US tech companies to recoup investment. Some may be mired in a loss.

The chip industry is one of the top US exporters and one of the few sectors that still generates a trade surplus, largely driven by sales growth in China, according to a report from The Wall Street Journal, noting that a potential chip sales ban could cost US chip makers about $36 billion in revenue.

"It will also inflict a chain reaction on various upstream and downstream players in US chip production," the insider said.

As for Boeing, China could possibly scrap all the current Boeing orders if the US steps on China's bottom line, even if it means some Chinese firms have to pay for the liquidated damages, an aviation industry insider told the Global Times.

If Boeing lost orders from China, the firm, which is already on the verge of bankruptcy, could only resort to US government for help in the end, the insider said, adding that China, the world's largest buyer for planes, could order more than 100 planes from the US firm that could worth 30 billion yuan every year.

While the pain, according to experts close to the government, is expected to be felt not only by big names mentioned above such as Qualcomm, Cisco and Apple, but also by smaller US firms that are more vulnerable to uncertainties.

Most US companies included in the list may be small-sized US firms that are highly dependent on Chinese companies, such as US trading agencies, Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing who is close to Chinese government, told the Global Times.

"They are vulnerable to restrictive measures. Once Chinese authorities impose sanctions on them, the cost is ill-afforded. Most small firms will be pushed to the brink of collapsing," Gao said. He noted that such countermeasures could serve as a "first-level" warning to the US side.

The Chinese Ministry of Commerce (MOFCOM) announced in May 2019 that China would release its own list targeting foreign entities that seriously undermine the legitimate interests of Chinese companies.

The unreliable entity list will include foreign organizations, individuals and companies that block or shut supply chains, or take discriminatory measures for non-commercial reasons, whose actions endanger the business of Chinese companies as well as global consumers and companies, according to MOFCOM, noting that once a company is listed, it will face necessary legal and administrative measures and the Chinese public will also be warned against it to reduce risks.

Insiders said that the administrative procedures for carrying out those countermeasures are as such: Chinese firms issuing litigation to relevant authorities on US companies' unfair market behaviors. Then regulators accept, investigate and obtain evidence. After referencing to laws and regulations, they will decide accordingly whether to revoke US firms' licenses in China or impose other penalties.

The new restrictions on Huawei are a firm reminder that Taiwan cannot trust the US as a reliable business or economic partner, Tom Fowdy, a British political and international relations analyst, told the Global Times, noting that the White House pushed TSMC to invest in America, and then within hours of getting that is slapping restrictions on their business with Huawei.

"That is extraordinarily dishonest business," he said.

Taiwan Semiconductor Manufacturing Co, or TSMC - the world's third largest chip maker - announced on Friday that it plans to build a $12 billion semiconductor factory in Arizona, with construction to start next year, CNN reported. And the latest US export controls would require foreign firms like TSMC that use US chip equipment to apply for a license before shipping components to Huawei.

"What the administration is effectively doing is forcing TMSC to rely more on the US while undercutting its business in Asia. That is extremely treacherous and sleazy," Fowdy noted.

While in all, China is only acting passively and defending its legitimate interests, given US President Donald Trump is spreading anti-China conspiracy that aims to cover up his mishandling of the COVID-19 pandemic. On Wednesday, Trump extended for another year an executive order signed in May 2019 declaring a national emergency and barring US companies from using telecommunications equipment made by firms posing a national security risk, Reuters reported.

The order was considered aiming squarely at Chinese companies like Huawei and ZTE Corp.

The US Department of Commerce is also expected to extend again a license, set to expire on Friday, allowing US companies to keep doing business with Huawei.

The US has failed to kill Huawei with a ban that has lasted over a year, while it's also fully aware that the longer the ban lasts, the higher cost US firms have to pay, and now it's on the verge of backfiring, said analysts.

The US Department of Commerce is close to signing off on a new rule that would allow US-based companies to work with Huawei on setting standards for next-generation 5G networks, Reuters reported on May 7.

Rather than interpreting the move as a goodwill gesture, Chinese analysts said it only shows the US has realized the cost of refusing to cooperate with the world's largest patent contributor to next-generation technology. US companies are falling far behind Huawei on 5G patents.

China has "well documented" Washington's usual threats and tactics of crackdown on Chinese firms including Huawei after previous rounds of confrontation, and also has ample countermeasures in hands that could precisely strike US economy, Gao said, adding that China will surely strike back without hesitation if the US continues to go its own way.

"China adopting countermeasures will eventually benefit China-US relations, as only by defeating the small portion of US politicians that harm bilateral relations can the two countries' relations and trade return to normal," He said.
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