9/21/2020 China releases details on unreliable entity list, raising uncertainty for foreign businesses

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CHIN A E CONOMY

China releases details on its own blacklist, raising

uncertainty for foreign businesses
P U B L I S H E D M O N , S E P 2 1 2 0 2 0 • 2 : 5 6 A M E DT

Evelyn Cheng
@ C H E N G E V E LY N

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KEY POINTS
Over the weekend, China’s Ministry of Commerce released long-awaited
provisions on its so-called “unreliable entity list.”

The release of the list comes a day after the U.S. Commerce Department
announced a ban on U.S. transactions using WeChat, a social messaging app
operated by Chinese technology giant Tencent, and TikTok, a short-video app
backed by Chinese start-up ByteDance.

“Beijing will likely name at least one US company to the (unreliable entity list)
between now and year-end – possibly even in coming days – but will use this
tool in a targeted fashion, particularly in its early stages,” Michael
Hirson, practice head, China and Northeast Asia, at consulting firm Eurasia
Group, and his team said in a note released Monday.

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9/21/2020 China releases details on unreliable entity list, raising uncertainty for foreign businesses

The skyline of the central business district in Beijing on August 13, 2019. (Photo by WANG Zhao / AFP) (Photo credit should
read
WANG ZHAO | AFP | Getty Images

BEIJING — The Chinese government is stepping up pressure on foreign businesses

not to run afoul of Beijing, as the White House continues to target some of the Asian
giant’s largest technology companies.

China’s Ministry of Commerce released long-awaited provisions on its so-called

“unreliable entity list” over the weekend. The vaguely worded document mirrors the
U.S. Commerce Department’s entity list that restricts named companies from
accessing items originating in the U.S.

“Beijing will likely name at least one US company to the (unreliable entity list)
between now and year-end – possibly even in coming days – but will use this tool in a
targeted fashion, particularly in its early stages,” Michael Hirson, practice head,
China and Northeast Asia, at consulting firm Eurasia Group, said in a note released
Monday.

“The coming debut of the (unreliable entity list) underscores the dilemma facing
(multi-national corporations) in China, who are squeezed between the legal and
political dictates of the US and its Western allies on the one hand and Beijing on the
other,” he said.

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9/21/2020 China releases details on unreliable entity list, raising uncertainty for foreign businesses

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VIDEO 02:59

WeChat ban will affect small businesses and millions of users in the U.S.

The Commerce Ministry first announced it was establishing the unreliable entity list
in May 2019. The move came shortly after U.S. President Donald Trump’s
administration said it was adding Chinese telecommunications giant Huawei to a
blacklist, which prohibits the company from working with its U.S. suppliers.
Huawei’s revenue last year missed internal forecasts by $12 billion, while profit
growth slowed from the prior two years.

Provisions from the unreliable entity list released Saturday laid out consequences for
a foreign entity — a company, organization or individual from another country — that
is deemed to be a danger to “national sovereignty, security or development interests
of China,” according to an English-language version of the policy on the Commerce
Ministry website.

Authorities can also add a foreign entity to the list if it suspends “normal
transactions” or takes “discriminatory measures” against a Chinese entity “which
violates normal market transaction principles and causes serious damage to the
legitimate rights and interests of the enterprise, other organization, or individual of
China,” the document said.

The consequences for an entity added to the list could include: restrictions or
prohibitions on China-related trade, investment in China and travel or work permits.

The release of the list comes a day after the U.S. Commerce Department announced
a ban on U.S. transactions using WeChat — a social messaging app operated by
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9/21/2020 China releases details on unreliable entity list, raising uncertainty for foreign businesses

Chinese technology giant Tencent, and TikTok — a short-video app backed by

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Chinese start-up ByteDance.

China’s Commerce Ministry said in an online statement that the unreliable entity list
will not target a specific country or entity. Other statements on the ministry’s website
about the unreliable entity list emphasized that China still welcomes foreign direct
investment and foreign businesses, which are an important contributor to the
national economy.

“The unreliable entity list regulations leave a fair amount of discretion to be applied
broadly. We hope significant restraint is exercised in utilization of the list,” the U.S.-
China Business Council said in a statement. “Companies increasingly feel squeezed
between the US and Chinese governments, where complying with the rules of one
government may cause them to run afoul of rules of the other government.”

The American Chamber of Commerce in China, EU Chamber of Commerce and

British Chamber of Commerce did not immediately respond to CNBC’s request for
comment.

Possible additions to the list

Hirson said in the Eurasia report that actions from the Chinese side would likely
focus on products with a domestic competitor and avoid disrupting imports of
products that China’s technology industry needs. Another factor, he said, could be
companies involved with U.S. arms sales to Taiwan.

According to the consulting firm, plausible targets include:

. Cisco
. Dell/EMC
. HP
. Lockheed Martin
. Rockwell Collins

On the other hand, the report said less appealing targets include:
. Apple and Microsoft — “high global visibility and reputations as good corporate
citizens within China.”
. Chipmakers Qualcomm and Intel/AMD, which are “important suppliers who have

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. Boeing, which “sells Apache helicopters to Taiwan, but its critical role for China’s
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airline industry and profile as a flagship US company will make Beijing cautious
about targeting it and inflicting any serious damage.”

Long-term implications
Tensions between the world’s two largest economy have escalated over the last two
years, beginning with trade and spilling over into technology and finance. Many
analysts expect pressure from the U.S. to pick up heading into the November
presidential election, in which Trump is running for another term. However, a win by
Democratic nominee Joe Biden is not predicted to soothe the bilateral relationship
much.

“The United States’ strategic goal is to prepare to use five years to defeat Chinese
companies and allow U.S. companies in this time to quickly catch up or overtake
(China),” Wei Jianguo, a former vice minister at China’s Ministry of Commerce, told
reporters in an online forum Monday, according to a CNBC translation of his
Mandarin-language remarks. He is now vice chairman and deputy executive officer
at Beijing-based think tank China Center for International Economic Exchanges.

“So cutting off semiconductors and banning TikTok are only a beginning for the
U.S.,” Wei said. “Regarding this, we have to prepare mentally for the long term.”

He said he hopes the U.S. can gain clarity on the situation and look for ways to
cooperate with China instead.

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