At first it appeared that Chinese president Xi Jinping would counter US president Donald Trump’s decision to blacklist Huawei by withholding exports of rare earths
At first it appeared that Chinese president Xi Jinping would counter US president Donald Trump’s decision to blacklist Huawei by withholding exports of rare earths © AFP

The “panicked” phone calls from clients started to come in within hours of the Chinese commerce ministry’s announcement on May 31 that it would compile a list of “unreliable” companies and individuals, according to one person who advises foreign groups operating in the country. 

Just a month ago, multinationals and investors were looking forward to an agreement that would end the China-US trade war that has rocked global markets for the past year. Instead, talks broke down as Washington and Beijing accused each other of “reneging” on the terms of an evolving agreement, shortly after which US president Donald Trump further enraged Chinese officials by barring Huawei, the country’s best known telecoms company, from sourcing American components and technology. 

At first it appeared that Chinese president Xi Jinping would counter Mr Trump’s decision to blacklist Huawei by withholding exports of rare earths, most of which are mined in China and are essential for the production of many high-tech and defence products. Instead, it was Beijing’s decision to counter the US Department of Commerce’s “entities list” with a blacklist of its own that has shaken many foreigners who do business in the world’s second-largest economy. 

So far the Chinese Commerce ministry has said very little about its “unreliables list”, other than that it could include “foreign legal persons, other organisations or individuals” who are suspected of “damaging the legitimate rights and interest of Chinese companies and jeopardised China’s national security and interests”. 

“This appears to cast a wide net beyond just commercial enterprises [as it] may include other organisations and individuals such as managers,” said James Zimmerman, a Beijing-based partner with Perkins Coie, a law firm, and former head of the American Chamber of Commerce in China. 

“This language is very subjective and could result in overreaching by the government,” he added. “What recourse, judicially or administratively, would someone or a company have if they are found to be a potential threat? This just creates uncertainty.” 

In particular, the vague reference to “China’s national security and interests” have reminded foreign executives of the two Canadians, Michael Kovrig and Michael Spavor, who have been held incommunicado since December for unspecified violations of Chinese national security. 

Their detentions have been linked publicly by China’s ambassador to Canada — and privately by many other Communist party officials in Beijing — to Ottawa’s detention of Huawei’s chief financial officer pending possible extradition to the US for alleged bank fraud. Since Mr Kovrig and Mr Spavor disappeared, participation by Americans and Canadians at events such as the annual China Development Forum and investment bank conferences has fallen sharply compared with previous years, according to organisers and participants. 

While Wang Shouwen, a vice commerce minister and deputy head of China’s US trade talks team, said at a briefing on Sunday that more details about the unreliables list would be announced soon. As of Tuesday afternoon there had been no further information. 

“The unreliables list gives China another card to play” in its ongoing trade and technology battles with the US, Yifan Hu, chief China economist for UBS’s Asia wealth management arm, said at a conference on Tuesday. 

While Chinese officials have not formally linked the unreliables list to Huawei’s inclusion on the US entities list, the Global Times, a tabloid published by the Communist party’s flagship newspaper group, and other official media organisations have been more explicit. 

The list, the Global Times said, “will carry weight and include well-known US companies that are strong enough to ‘pose actual or potential threats to China’s national security’.” It added that the list would be “a starting point [for Beijing] if Washington tries to weaponise US technology power to contain China’s rise”. 

That could put US companies that will have to comply with the Huawei blacklist, such as Google, firmly in Beijing’s crosshairs. 

American multinationals in other industry sectors could also end up on the list. Over the weekend in Beijing there was a steady escalation of official criticism of US express delivery giant FedEx, which apologised last week for mistakenly directing packages addressed to Huawei’s China offices to the US instead. 

After a brief Xinhua news agency report on June 1 that FedEx would be formally investigated for harming its Chinese clients’ “legitimate rights and interests”, Mr Wang singled out the company at his weekend briefing and his stance was echoed by the head of China’s postal regulator, who was interviewed on state television’s main evening news broadcast. 

In such a febrile climate, even seemingly routine developments raise the spectre of possible Chinese government retaliation. Last week the American and Australian chambers of commerce (Amcham and Austcham) in Beijing were informed by their regulator, the Ministry of Civil Affairs, that they would be audited along with more than 200 other non-governmental organisations. 

Four people familiar with the chamber audits say there is nothing to indicate either is out of the ordinary. Amcham declined to comment while the civil affairs ministry did not respond to a request for comment. In a statement, Austcham said it had been “randomly selected” and would fully co-operate with the ministry.

Additional reporting by Yizhen Jia

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