Is China's 'Unreliable List' A Serious Threat to Foreign Companies?
June 14, 2019 | BY
Marilyn RomeroChina's impending release of its "Unreliable List" of foreign firms may be a retaliatory tool in its escalating trade war with the U.S.
FedEx
The Ministry of Commerce of China, or MOFCOM, announced on May 21 that it will soon be releasing a blacklist of foreign companies that will face—as yet unspecified—sanctions for anti-China activities. This “Unreliable List” of foreign companies has generally been viewed as, at least in part, a response to increasing actions being taken by the U.S. administration against Chinese IT giant, Huawei Technologies Co. Ltd.
Much of the information so far released has been vague, but according to MOFCOM, inclusion of foreign companies on the Unreliable List is based on four factors: First, whether the entity has adopted discriminatory measures against Chinese entities including a blockade or supply cut; second, whether the foreign entity violates market rules for non-commercial purposes; third, whether a foreign entity's actions have caused actual damage to a Chinese company; and finally, whether such actions pose actual or potential threats to China's national security.
The government has not so far clearly identified what restrictions or punishments will be imposed on foreign firms that are included on the Unreliable List, although MOFCOM spokesman Gao Feng has made assurances that any foreign company that complies with Chinese laws, market rules and the spirit of contracts will not have to worry about the list. He also stressed, however, that China will make no compromise on key matters of principle in the trade disputes with the U.S. “China's attitude is very clear. The United States must change its attitude, show sincerity and correct its wrong practices if it wants the talks to continue,” he said.
Chinese Vice Commerce Minister Wang Shouwen also tried to play down concerns, saying that it might be an “over-interpretation” that the Unreliable Entities List will be used to target foreign companies as a retaliation tool in the trade war. However, many commentators, including official Chinese media, have generally viewed it as such.
China's Global Times newspaper has argued that the list will be more focused on the tech industry. The announcement of the list comes soon after the U.S. decided to put Chinese firm Huawei Technologies on its own “Entity List”, restricting the company from doing business with American suppliers without government approval. Since then, major U.S. tech companies such as Intel, Qualcomm, Google and Amazon, have pulled back from doing business, with serious consequences for Huawei.
Based on the Unreliable Entities List's qualifying factors, these tech companies could be among the first to be listed. However, restrictions are unlikely to be severe, according to the Washington Post, because China needs to do business with these companies both as business customers and as essential suppliers to its fast-developing tech industries.
Cui Fan, the director of research at the China Society for World Trade Organization Studies, a think-tank affiliated with China's Ministry of Commerce, told Bloomberg that companies that are investing and producing in China could be spared the “unreliable entity” designation. The list is more likely to target logistics companies that export to China, according to Cui.
There may also be a connection with China's recent announcement that it was investigating FedEx Corp. for mis-routing some parcels sent by Huawei. Although there has been no official link to the Unreliable Entities List, some state media have argued that the probe of the American shipping company is a warning to the U.S. after its actions against Huawei.
Soon after the news on FedEx was released, China fined Ford Motor Company's main joint venture in the country for what it alleges are antitrust violations, which has also raised concerns that it may be connected. The official Xinhua report, however, toes the official line that the list is nothing more than China's commitment to creating a better business environment. “As China keeps widening its opening-up, it has also devoted great efforts to safeguarding the legitimate rights and interests of both domestic and foreign companies,” says the state media.
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