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China’s entity list won’t focus on an industry, Commerce Ministry says

China's entity list won't focus on an industry, Commerce Ministry says


China’s entity list won’t focus on an industry, Commerce Ministry says

SHANGHAI, CHINA – FEBRUARY 23: The Chinese flag floats before the skyscrapers of multinational corporations on February 23, 2018 in Shanghai, China.

Vincent Isore/IP3 | Getty Images

China’s Ministry of Commerce maintained a harsh tone Thursday on trade talks with the U.S., while remaining vague about one of its most feared countermeasures.

That’s Beijing’s “unreliable entities list,” which was announced last Friday and would supposedly identify foreign entities that present a risk to Chinese companies. That list, when it is released, won’t focus on a specific industry, company or individual, Commerce Ministry Spokesman Gao Feng said at a weekly press conference Thursday, according to a CNBC translation of his Mandarin-language remarks.

He said the government is still working on details that will be unveiled in the near future.

Discussion about the list comes after U.S. President Donald Trump’s administration put Chinese telecom giant Huawei on its so-called “Entity List” that effectively prevents the company from working with U.S. businesses. More than 30 U.S. companies, including Qualcomm, Micron, Qorvo and Skyworks, are considered Huawei’s “core suppliers” for products ranging from smartphones to telecommunications networking equipment.

When asked about negotiations between both countries, Gao echoed a frequent government line that the U.S. must show sincerity in adjusting its “wrong actions” before talks can continue.

“Because of the U.S. pressure, continually increasing trade frictions … the responsibility lies completely with the U.S. side,” Gao said.

The lack of detail around China’s “unreliable entities list” has increased uncertainty among the foreign business community in China. The country is a major consumer market or production center for many major international companies.

The list’s stipulations as published in English by state news agency Xinhua are broad and highly subject to interpretation: “China will consider whether the foreign entity has adopted discriminatory measures on Chinese entities including a blockade or supply cut, whether the foreign entity violates market rules or contract spirit for non-commercial purposes, whether it causes actual damage to Chinese firms or related industries, and whether it poses actual or potential threats to China’s national security.”

For many, that description has left many important questions unanswered.

“What does ‘discriminatory measures against Chinese companies’ actually mean?” Nicholas Holt, chair of the British Chamber of Commerce in Beijing, and head of research, Asia Pacific, Knight Frank, said in a phone interview Thursday with CNBC. “Any of our companies could suddenly find ourselves on this list.”

“It’s this sort of race to the bottom that we’re concerned about,” Holt added. “It’s a perception that China is reacting and we could be facing a long period of U.S.-China tensions that could impact the business environment here.”

On Monday, state-run tabloid Global Times published an article titled “Unreliable entity list to focus on US technology firms,” which contrasted with Gao’s comments on Thursday that no specific industry or company would be targeted.

Representatives from the American Chamber of Commerce in Beijing and U.S.-China Business Council were not available for comment on the announcement of the unreliable entities list. Meanwhile, Joerg Wuttke, president of the European Union Chamber of Commerce in China, said that punitive measures from Beijing may not benefit China in the long run.

“The European Chamber sympathises with China’s frustration over the trade war, but the creation of a new tool made exclusively to target foreign companies is counterproductive at a time when China’s economy is slowing and foreign investor confidence is deteriorating,” Wuttke said in a statement to CNBC earlier this week.

Wuttke noted the direct impact of trade tensions on European business in China was limited, but the indirect effect on sentiment is more intense. “Further restrictions and negative news coming out of China are not conducive to improving this very complex economic and political environment,” he said.

Also on Thursday, the Commerce Ministry released an 11-page research paper about “U.S. benefits from China-U.S. economic cooperation.” The document emphasized how both countries should work together more on trade.

—CNBC’s Arjun Kharpal contributed to this report.

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