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INSIGHTS

U.S. blacklists more Chinese companies as tensions escalate

U.S. blacklists more Chinese companies as tensions escalate
After Hikvision and other Chinese companies were put on the US sanction Entity List, the US Department of Defense last week announced more blacklist companies.
After Hikvision and other Chinese companies were put on the US sanction Entity List, the US Department of Defense last week announced more blacklist companies, including Semiconductor Manufacturing International Corp. (SMIC), that they alleged to have ties with the Chinese military. This indicates tensions between the U.S. and China are unlikely to stop anytime soon, even after the Joe Biden administration takes office in January.

On December 3, the Pentagon blacklisted four what they said were “Communist Chinese military companies” operating directly or indirectly in the U.S. The four will now join other blacklist companies to be affected by Section 1237 of the National Defense Authorization Act, which prohibits US persons from engaging in “any transaction in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities” of Communist Chinese military companies identified by the Defense Department.


The four blacklist companies


The four blacklist companies are: China Construction Technology, China International Engineering Consulting, China National Offshore Oil and SMIC. In particular, SMIC’s blacklisting is expected to deal another blow to China’s semiconductor industry.

(Update: On Dec. 18, the US Commerce Department also added more than sixty other entities to the Entity List for actions that it said deemed "contrary to the national security or foreign policy interest of the United States." According to the agency, these include "entities in China that enable human rights abuses, entities that supported the militarization and unlawful maritime claims in the South China Sea, entities that acquired U.S.-origin items in support of the People’s Liberation Army’s programs, and entities and persons that engaged in the theft of U.S. trade secrets.")

Earlier this year, the Commerce Department restricted US companies as well as foreign chip companies using US chip-making equipment and materials (for example Taiwan Semiconductor Manufacturing Co.) to supply to Huawei and its subsidiaries, including Hisilicon. While China has vowed to develop its own chip manufacturing capabilities to reduce foreign reliance, it would be difficult for them to achieve the kind of expertise as in Intel or TSMC.

Indeed, the latest move represents the U.S.’s continued effort to suppress China’s technology sector which they view as an increasing threat. Last year the U.S. banned dozens of blacklist companies, including Hikvision, Dahua and several AI companies like SenseTime and Megvii, from doing business with US firms. Hikvision and Dahua products are already banned from US federal government agencies as part of the NDAA.

But whether these measures are effective in curbing the Chinese blacklist companies’ growth is questionable. In asmag.com’s Security 50 ranking this year, Hikvision and Dahua solidly retained their No. 1 and 2 spots with revenues of $7.7 billion and $3.8 billion, respectively, a growth of 13.16 percent and 10.5 percent. Further, on this year’s list, there are a total of 14 Chinese companies, yet they have a combined revenue of $14.43 billion, which accounts for over half, 56 percent to be exact, of the Security 50 total.

All in all, whether, and by how much, will China suffer as a result of U.S.’s sanction measures remains to be seen. What is clear is that, even though initiated by the Trump administration, toughening up against China has become a bipartisan consensus in the United States. And this is expected to continue even after the incoming Biden administration takes office in January. We can therefore expect tensions between the two largest economic entities in the world to continue in the near term.
 

Other developments in Chinese security


In related news, the Shanghai Stock Exchange has decided to review an application by Cloudwalk Technology to be listed on the board. Cloudwalk is one of China’s so-called four AI little dragons, the other three being SenseTime, Yitu Tech and Megvii. With the exception of SenseTime, all the other three have applied for trading on the board.

Indeed, getting listed is the first step towards the firms’ further expansion into other parts of the world. Yet, as mentioned earlier, the U.S. is aggressively targeting Chinese tech firms, especially those developing AI. SenseTime, Megvii, Yitu and Cloudwalk are all blacklist companies that the U.S. has announced in different times. It’s still too early to tell whether the companies’ listing applications will be approved. But even if they were, the companies are still faced with a lot of challenges on their roads towards further internationalization.

The following blacklist companies have also been put on the Entity List by the US Commerce Department: FiberHome Technologies Group and a subsidiary, Nanjing FiberHome Starrysky Communication Development; NetPosa and a subsidiary, SenseNets; Intellifusion; and IS'Vision.


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