China creates blacklist of 'unreliable' foreign firms amid trade war

China on May 31 said it would release a blacklist of "unreliable" foreign companies and inpiduals, hitting back after the United States targeted telecom giant Huawei in their escalating trade war.

China is set to announce a blacklist against 'unreliable' foreign firms amid its trade war with the US. (Photo: AFP/Fred Dufour)

The announcement was made a day before Beijing is due to increase tariffs on US$60 billion in US goods, capping a week marked by rising Chinese threats of retaliation after President Donald Trump blacklisted Huawei.

The US Commerce Department placed Huawei on an "entity list" on grounds of national security on May 16, a move that curbs its access to US-made components it needs for its equipment. A 90-day reprieve was later issued.

China's commerce ministry announced on Friday that it will release its own list of "unreliable entities".

Ministry spokesman Gao Feng said the list will include "foreign enterprises, organisations or inpiduals that do not comply with market rules, deviate from a contract's spirit or impose blockades or stop supplies to Chinese enterprises for non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises".

The detailed measures against firms on the list will be released shortly, Gao said.

The Chinese move appears aimed at pressuring foreign companies to maintain commercial relations with Huawei - Washington is reportedly also considering adding Chinese surveillance firms to its list for alleged human rights violations.

Google, whose Android operating system is vital to Huawei phones, is among the companies that have announced that they will abide by the US order.

Another critical partner, ARM Holdings - a British designer of semiconductors owned by Japanese group Softbank - said it was complying with the US restrictions.

"Some foreign entities have violated normal market rules and the spirit of their contracts" to cut off supplies and "take other discriminatory actions against Chinese companies damaging their legitimate rights and interests, and endangering China's national security and national interests," Gao said, according to state-owned Global Times.

Rajiv Biswas, APAC chief economist at IHS Markit, said China's decision to create a blacklist was "a tit-for-tat countermeasure to signal that China can target US firms".

He said the sanctions could be similar to the US entity list, which restricts the sale of technology by US firms to companies on the list.

Huawei has been thrust to the centre of the trade spat, with Trump suggesting last week that the company could be included in a deal.

The United States claims the company has deep links to China's Communist-led government and warns that its equipment could serve as a Trojan horse for Chinese intelligence services.

Huawei - the world's second smartphone maker and a leader in developing next-generation 5G networks - vehemently denies the charges.

TRUMP 'LIES'

China's entity list will help safeguard a rule-based global supply chain, said Zhang Yansheng, chief researcher at the China Center for International Economic Exchanges think tank.

"In the past, commercial deals were based on contracts, but now those can be changed over so-called security issues," he told AFP.

Firms that substantially harm a company or supply chain may face punishments or sanctions, Zhang said.

China's announcement follows a growing war of words.

Washington and Beijing resumed their tariffs battle earlier this month after trade talks in Washington ended without a deal, with the US side accusing Chinese negotiators of reneging on previous commitments.

The countries have exchanged tariffs on US$360 billion in two-way trade so far.

Trump said Thursday the US tariffs have had a "devastating effect" on the Chinese economy.

"The US side has said such lies not just once or twice. Every time China exposes them in time, but the US seems to be very persistent, even obsessed, and keeps repeating these lies," said Chinese foreign ministry spokesman Geng Shuang.

TARIFFS ON CONDOMS

Trump more than doubled punitive tariffs on US$200 billion in Chinese goods to 25 per cent this month, and launched the process to hit nearly all remaining imports from the Asian country.

China responded by announcing that it would increase tariffs on US$60 billion in American products on Jun 1.

The US tariffs appear to have already had an impact on Chinese manufacturing activity, which contracted more than expected this month. Experts note that US consumers and importers bear the brunt of tariffs on products coming into the United States.

Now China is hitting back Saturday with tariffs ranging from five percent to 25 per cent on 5,410 products.

Those facing the 25 per cent hike include beauty products, sports equipment, musical instruments, wine, condoms, diamonds, wood, fabric and toys.

Chinese state media suggested this week that Beijing could also hit back by stopping exports of rare earths to the United States, cutting off key materials used to make everything from smartphones to televisions and military equipment./.

VNF/Reuters