More sanctions, entity list additions, and export controls
Over the past two weeks, there have been many new developments related to sanctioning Chinese companies and adding more to the entity list:
Treasury Sanctions CEIEC: On November 30, the Treasury Department sanctioned Chinese electronics firm, CEIEC, for providing technological support to the illegal Venezuelan regime led by Nicolas Maduro. The sanctions freeze CEIEC’s U.S. assets and bar Americans from doing business with them.
Additions to the DOD Blacklist: On November 29, Reuters reported that four more Chinese firms will be added to the Department of Defense blacklist of Chinese firms with military ties. The firms include SMIC and CNOOC. It is not clear when the firms will be officially added, but their addition will bring the total to 35 Chinese companies. The DOD blacklist was part of last month’s Executive Order barring U.S. investment in those firms and other designated firms.
DOC “Military End User” List: Reuters also reported on November 22 that the Department of Commerce had developed a list of 89 Chinese aerospace and other companies with military ties, including COMAC and AVIC and its subsidiaries. This list is part of a draft export rule governing Chinese and Russian companies that are deemed “military end-users” -- the definition for these users was expanded last April. Being on this list means that U.S. suppliers will have to get a license to sell a whole host of products to these firms, including onboard computers and other commercially available equipment. This action, in particular, brings into question the reliability of U.S. firms as suppliers for Chinese companies, which could benefit European competitors.
WRO on Xinjiang Cotton: Yesterday, U.S. Customs and Border Protection (CBP) issued a withhold release order (WRO) against U.S. imports containing cotton or other materials produced by the Xinjiang Production and Construction Corps (XPCC) effective immediately. CBP issued five other WROs in September. This is the central component of the Trump Administration’s effort to tackle the Xinjiang human rights issues. The Senate is expected to schedule a vote on the Uyghur Forced Labor Prevention Act, which says that all goods made in Xinjiang are subject to forced labor.
These actions reaffirm that members of the Trump team who advocate a hardline approach to China are still able to push through punitive actions that will be hard for the next Administration to unwind. Entity lists and blacklists are more complicated to undo than Executive Orders, for example. There is some growing speculation that because the Executive Orders on ByteDance and WeChat have had unintended negative consequences for U.S. firms and users that those actions could be reversed by a Biden Administration with a little political downside.
Delisting bill passes
The Holding Foreign Companies Accountable Act passed Congress and is expected to be signed into law by the President. The bill gives foreign companies a three-year grace period to comply with U.S. audit requirements or to delist. The bill is not China-specific, but the target is Chinese companies as they currently do not comply with audit requirements due to Chinese law.
Treasury Secretary Steven Mnuchin has worked with Chinese counterparts to develop a mutually acceptable solution to keep the listings. It is unclear if Biden’s nominee for Treasury, Janet Yellen, will utilize that path, but it is likely given that Chinese firms represent an estimated $1.8 trillion on the exchanges. There is also concern on Wall Street that these actions are driving Chinese companies to list in Hong Kong and even Europe and could pose a long-term challenge for U.S. capital markets.
Techno-democracy alliance, D-10, being explored
The buzz around engaging U.S. allies to tackle the China challenge has galvanized into bipartisan consensus. Now comes the interesting process of identifying the right platforms and processes to secure that ally engagement. The UK has proposed the D-10 which would be a new alliance of 10 democracies (the G7 plus Australia, India, and South Korea) to promote Western tech, including addressing the build-out of 5G networks – and Huawei’s prominent role. Reportedly, Biden’s nominee for Secretary of State, Tony Blinken, could support such an approach of unifying the world’s “techno-democracies” saying last September that the U.S. must work with allies to set common policies on export controls, investment restrictions, and technical standards to ensure an “ecosystem that protects and promotes liberal democratic values.”
Whether or not there is a D-10, there is likely to be an international alliance in some form for China to contend with as its tech companies pursue global markets. If allies band together and align on “democratic principles” for tech adoption, this solidifies the lines of competition.
Travel restrictions on CCP members – and their families
Effective immediately, the 92 million members of China’s Communist Party and their immediate family are subject to visa restrictions. The new policy limits travel visas for Party members to one-month and single entry; previously they were able to obtain multi-entry, 10-year visas. Immigration and employment visas were not changed. This will impact the high profile heads of Chinese companies and senior officials mainly as it could be hard to determine lower-level officials. Visas have been an ongoing irritant for the bilateral relationship exacerbated by the new restrictions from the pandemic as well as Trump’s tougher immigration policies.
Biden’s cabinet nominees and China
Shifting now to the incoming Biden Administration, the President-elect has announced key cabinet picks, most of which are expected to be approved by the Republican-dominated Senate. The following is a summary of their views on China and trade:
Tony Blinken, State Department: Blinken is a proponent of multilateralism and is likely to be the point person for building international coalitions to engage China. He believes that China is a competitor to the U.S, but opposes complete decoupling with China advocating that there is room for cooperation on climate change, pandemic control, arms control, and other issues.
Jake Sullivan, National Security Advisor: Sullivan is closely aligned with Blinken’s multilateral approach. He has said that the “major focus” of the NSC initially will be the pandemic and making public health a permanent national security priority for the NSC. He added that China will be “put on notice” and that we will no longer accept a global system in which we do not have full visibility into the work of global health organizations. On trade, he said during an interview last year that the current form of the CPTPP is unacceptable, but if the agreement could be reworked to address SOEs, subsidies, and other concerning issues, he might support reopening the discussion on U.S. participation in the agreement.
Janet Yellen, Treasury Department: Yellen is a supporter of open trade and the international trading system. She has spoken out about China’s industrial practices but is against Trump’s tariff approach. She has warned about the risks of technological decoupling with China, and according to the U.S.-China Business Council may focus on issues around government subsidies for Chinese SOEs and the national security implications of U.S.-China competition in AI, 5G, and other technologies, which she has acknowledged are challenges that must be addressed.
John Kerry, Climate Envoy: The former Secretary of State and senior Senator has gotten a quick start with China. Biden’s focus on climate and China’s key role will put Kerry front and center with China engagement, which will be challenging for Blinken.
Linda Thomas-Greenfield, UN Ambassador:Thomas-Greenfield is a career diplomat who served for 35 years as a foreign service officer. As the UN Ambassador, she is expected to hold China to account on human rights, but be open to cooperation on climate issues.
USTR: The current list of potential appointees includes two Democratic trade counsels from the Congress and a Congressman; however, we are hearing rumors that Biden might keep current USTR Robert Lighthizer because he is well-liked by Republicans and Democrats. This would be positive for China as he has strong personal relationships with the Chinese economic and trade teams.
White House Asia tsar being considered
There have been reports that the Biden White House is debating appointing an Asia tsar to deal with increasing U.S.-China tensions and to signal the importance of the region. This position would be under the National Security Council and is favored by National Security Advisory nominee, Jake Sullivan. The cons are that having a high-profile point person gives China a single player to put pressure on. The pros are that this person could have the power to coordinate interagency, which could be a big issue as the Cabinet could be looking to stake out their turf. Jeff Prescott is reported as a contender for the position. He has been a part of the Biden campaign and was a senior advisor to Biden when he was Vice President.