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Plans for the list were announced amid the continuing tensions between the US and China, but one diplomat said it was “not only American” firms that were worried. Photo: AFP

China warned its ‘unreliable entities’ list risks undermining foreign business confidence

  • Sources say plan has generated concern about a lack of transparency and possible abuse of blacklist
  • Measure to target organisations and individuals that pose a threat to Chinese firms or security was announced following US sanctions against Huawei

China needs to walk a fine line when compiling its list of “unreliable entities” or risk undermining foreign companies’ confidence about operating in the country, diplomatic and business sources have warned.

Two weeks ago Beijing announced plans to create a list of foreign companies, organisations and individuals that posed a national security risk or had damaged the interests of Chinese businesses by blocking or cutting supplies for non-commercial purposes.

The move was in response to an America decision to blacklist the Chinese tech giant Huawei.

On Thursday the Chinese Ministry of Commerce said it would publish the list soon and set out detailed measures once the necessary procedures were completed.

Chinese officials have tried to reassure businesses that the country still welcomes foreign investment, but the measure has prompted concern about a lack of transparency and possible abuses.

China announced plans for the list after the US moved against tech giant Huawei. Photo: Bloomberg

One diplomatic source said that foreign companies – and “not only American” ones – were nervous about the lack of a clear definition as to what being “unreliable” meant.

Businesses are also concerned that if they are placed under investigation they may have to hand sensitive information over to Chinese regulators – which would put their intellectual property at risk of being leaked, according to the source.

An American business source warned that unless regulators made a full disclosure about the reasons for including companies on the list – and explained what they needed to do to be removed from it – then the process itself could be seen as unreliable.

Beijing to blacklist ‘unreliable’ foreign entities that ‘hurt interests of Chinese firms’

The source also warned that abuse of the list – especially if it was used to retaliate against American firms for the blacklisting of Chinese tech firms – would accelerate the process of diversifying supply and production chains outside China.

Separately, the official news agency Xinhua reported that the National Development and Reform Commission was considering plans to set up a national technological security management list to “more effectively forestall and defuse national security risks”.

The Chinese Ministry of Commerce said the list would be published soon. Photo: EPA/ EFE

Joerg Wuttke, president of the European Union Chamber of Commerce in China, warned that an unreliable entity list could backfire.

“The European Chamber sympathises with China’s frustration over the trade war [with the US], 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,” he said.

Huawei’s chip unit says it prepared years ago for doomsday scenario of US tech ban

He said the direct impact on European companies was limited at the moment, largely due to years of “intense onshoring into China”.

“However, the indirect impact, through customers losing confidence and rising uncertainty in the future, are being felt much more intensely at this point,” Wuttke said.

“Further restrictions and negative news coming out of China are not conducive to improving this very complex economic and political environment.”

Joerg Wuttke, president of the European Union Chamber of Commerce in China, warned that the plans could backfire. Photo: EPA

Louis Kuijs, head of Asia economics with Oxford Economics, said that the chance of further deterioration in relations between China and the US had increased as “both sides are planning further restrictions targeting each other’s companies”.

“Further escalation in trade conflicts will certainly undermine growth in both economies,” he said.

This article appeared in the South China Morning Post print edition as: China warned that ‘unreliable entities’ list could backfire
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