OPINION – The ‘blacklisting’ of Chinese companies in the USA (I)

Over the past few years, especially in the last months of the Trump Administration, the U.S. government has been blacklisting many Chinese companies.

Jorge Costa Oliveira – Partner and CEO of JCO Consultancy

Macau Business | June 2021


There is a blacklist from the Department of Commerce, called the “Entity List”, which includes about 60 Chinese companies, for allegedly acting against the interests of national security or foreign policy of the United States. The specific grounds invoked for inclusion on this list vary; in the last addition, the “risk of access to American technology being used for military use by a potential enemy State” (in the case of SMIC and related entities) and “enabled wide-scale human rights abuses within China through abusive genetic collection and analysis or high-technology surveillance, and/or facilitated the export of items by China that aid repressive regimes around the world, contrary to U.S. foreign policy interests” (in the cases of DJI, AGCU Scientech, China National Scientific Instruments and Materials (CNSIM), Kuang-Chi Group) stand out.

But perhaps the most relevant blacklists are those of the U.S. Department of Defense (DoD), which includes “companies with connections to the People’s Liberation Army” (PLA) of the P.R. of China (“Chinese Communist Military Companies” – CCMCs) or what it designates as “strategy of Military-Civil fusion”, according to which “the PRC increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities. Those companies, though remaining ostensibly private and civilian, directly support the PRC’s military, intelligence and security apparatuses and aid in their development and modernization.” Thus far, there are at least 5 DoD blacklists with 44 ‘CCMCs’ (eg., CCCC, CALT, CEC, CNCEC, ChemChina, CNECC, CTG, CSCEC, China Spacesat, Sinochem Group).

On November 12, 2020, the U.S. President Executive Order 13959 (EO 13959), “find[ing] that the PRC’s military-industrial complex, by directly supporting the efforts of the PRC’s military, intelligence, and other security apparatuses, constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States”, prohibits transactions (except to divest) by or on behalf of U.S. persons in publicly traded securities of Chinese companies listed as ‘CCMCs’; further clarification on the intent of EO 13959 states that said prohibitions against U.S. person ownership of ‘CCMCs’ securities are to be applied anywhere in the world.

(Xinhua/Lan Hongguang)

On December 28, 2020, U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) also published its initial list of entities subject to EO 13959, designating these entities “Non-SDN Communist Chinese Military Companies” (the NS-CCMC List). The NS-CCMC list, which was updated on January 8, 2021, includes the 44 DoD designations and also identifies a number of entities whose names exactly or closely match the names of companies identified under EO 13959. The entities added by OFAC came in conjunction with its announcement that NS-CCMC List would not automatically capture all subsidiaries 50% or more owned by the named CCMCs.

On January 6, 2021, NYSE announced to have commenced delisting proceedings against China Telecom Corporation Limited, China Mobile Limited, and China Unicom (Hong Kong) Limited to comply with EO 13959. In February 2021 delisting proceedings followed for CNOOC Limited. Many others will follow until the end of 2021, early 2022.

The Biden Administration has maintained this policy and apparently it will increase these blacklists. This U.S. stance is likely to lead to even greater restrictions on the interaction of American financial companies with these Chinese companies.

As the U.S. government reacts against the rise of China as a new superpower, engaging in a ‘trade war’, limiting the internationalization of Chinese companies in the USA market, blacklisting many of the most relevant Chinese companies from access to U.S. suppliers, market and finance, incertitude grows and a new international tension spreads around the world.

At the same time, the January 2020 “U.S.-China Phase One Trade Deal” is still in force, but its implementation will be difficult given the turbulent waters on trade between the two countries.

On the other hand, President Biden’s Infrastructure and Economic Recovery Plan is expected to cost more than $2 trillion and the American Families Plan roughly $1 trillion more. All this on top of $1.9 trillion for the Coronavirus Relief plan. A lot of this funding will come from Treasury Bonds and China is traditionally one of the main buyers…

In coming articles, we will look into the consequences of this backlisting of Chinese companies and the stance underlying it for international trade and investment, as well as for USA companies in China.