China's potential unreliable entity list emerges

By Tu Lei and Chen Qingqing Source:Global Times Published: 2019/7/26 12:52:57

China’s negotiation strategy sharpens as trade talks to resume

A FedEx delivery truck is pictured in Manhattan, New York on June 25. US courier delivery company FedEx Corp sued the US Department of Commerce on June 24 over a request that the package giant enforce restrictions on Chinese telecom equipment provider Huawei. Photo: Xinhua

A potential Chinese unreliable entity list has emerged. Foreign companies such as FedEx, Flex and HSBC are likely to be first included on the list for their behaviors jeopardizing the interests of Chinese firms by cooperating with US long-arm jurisdiction.

Chinese authorities on Friday unveiled more details about the ongoing probe into US delivery firm FedEx, saying the firm's previous statement that the misrouting of Huawei's packages to the US was an "operational error" is inconsistent with facts. 

FedEx had also delayed over 100 packages sent from overseas locations to Huawei in China, the probe found.

During the investigation, regulators also found other indicators that FedEx was violating China's regulations and laws, the Xinhua News Agency reported on Friday.  

US original equipment manufacturer Flex Ltd said on Thursday that it will cut cooperation with Huawei.

Global Times on Thursday reported that the US original equipment manufacturer Flex Ltd had privately detained materials and equipment belonging to Huawei, worth more than 700 million yuan ($102 million), for over one month after the Trump administration placed the Chinese company on a blacklist in May.

The Chinese government will investigate [FedEx issue] in an objective and fair manner, Hua Chunying, spokesperson of China's Foreign Ministry said when asked what kind of consequences FedEx will face at a daily briefing on Friday. 

As for the consequences, it depends on the results of the investigation, Hua said.

FedEx apologized for any confusion or harm to their customers in China in response to the China State Post Bureau investigation.

FedEx said the shipments in question were handled while they were trying to comply with the US government order, which was unclear, and complicated their operations. 

FedEx said they will prevent similar occurrences from happening, and they are committed to complying with applicable laws and regulations in China.

The government provided more details about the ongoing probe into FedEx on Friday because China wants to gain the initiative in negotiations with the US, an expert from the Chinese Academy of Social Sciences told the Global Times on Friday on condition of anonymity. 

HSBC has been lobbying the Chinese government not to blame it for the arrest of Huawei chief financial officer Meng Wanzhou, saying that it had no choice but to cooperate with the investigation and provide information that US authorities needed to build a case against Huawei. 

The bank's cooperation has helped lead to US charges against Huawei, as it was attempting to convince the US Department of Justice (DOJ) to dismiss criminal charges for the bank's own misconduct involving US sanctions, Reuters reported in February. 

A source close to the matter told the Global Times during a recent interview that the manner in which the bank helped the DOJ acquire documents implicating Huawei was unethical, as this implies it could give out its clients' confidential information at any time for its own interests.

"HSBC set a trap to obtain the PowerPoint presentation on Huawei's relations with Skycom, and global companies that have business with the bank should be aware of such malicious tactics," the source said. 

The unreliable entity list will include foreign entities, individuals and companies that block and shut the supply chain, take discriminatory measures over non-commercial reasons, or when their actions endanger the business of Chinese companies or global consumers and companies, Gao Feng, spokesperson of Ministry of Commerce told a press conference on May 31.

The latest progress from the FedEx probe clearly indicates that the US delivery firm violated Chinese law and damaged the interests of Chinese companies. It is possible that FedEx's delivery license in China could be revoked, Zhao Xiaomin, a veteran industry analyst, told the Global Times on Friday. 

"It will be put onto China's unreliable entity list, as it takes advantage of Chinese companies and violates relevant laws," he said, noting that it is also unacceptable that US companies ignored China's territorial jurisdiction to implement US domestic laws. 

China's entity list is still being drafted, according to the Ministry of Commerce, and analysts have said that companies like FedEx, electronics-maker Flex and HSBC will be the first to be added as they have ignored China's territorial jurisdiction.

Some analysts also suggested that HSBC's way of cooperating with Washington violated China's law on international criminal justice assistance. 

The law is believed by some as China's answer to repeated US long-arm jurisdiction against Chinese firms.

Yan Yiming, a Shanghai-based lawyer who frequently deals with foreign investors, said legal papers aside, the real sword that can cut off US long-arm jurisdiction will be a country's overall strength and the size and depth of its market. 

China's enormous market and huge demand will be the country's best weapon in breaking off such long arms. 

"Because China is such an indispensible market, some companies have to scramble to distance themselves from matters that China threatens to sanction," Yan said.

Consistent strategies 

The unreliable entity list is among measures from China to counter the negative impact of the US-initiated trade war.  

The anonymous expert from Chinese Academy of Social Sciences said that they also proposed to the government a "reliable entity list" amid the ongoing trade war for those who support cooperation between China and the US.

The Chinese government is considering the proposal, he said. 

The US' flip-flops on the trade negotiations since the start of the war has sharpened China's strategy - which is, China does not want a trade war, but it is never afraid of fighting one, Chinese observers noted as negotiators from the two sides resume their stalled talks next week. 

The scale and quality of China's countermeasures are improving and China's principle is clear: it has a firm stance and a bottom line that will not change, Bai Ming, deputy director of the International Market Research Institute of the Chinese Commerce Ministry, told the Global Times. 

"Negotiations are not the final goal, and China will not compromise on a result that does not conform to the interests of the country and its people," said Bai. 

Li Ruohan and Chu Daye contributed to this story
Newspaper headline: Possible unreliable list emerges


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