What We Know About China’s ‘Unreliable Entities’ Blacklist

(Bloomberg) -- U.S. President Donald Trump has made the economic confrontation with China about much more than tariffs, with a move to cut off U.S. supplies from its biggest telecommunications company, Huawei Technologies Co. China appears to have responded in kind: With the establishment of a list of what it calls “unreliable entities,” the government says it will act against foreign companies that damage their Chinese counterparts. The announcement raises more questions than answers.

1. What is an ‘unreliable entity’?

It’s a foreign company, organization or person which China says has “severely damaged the legitimate interests” of Chinese firms by not obeying market rules, violating contracts or blocking or cutting off supply for non-commercial reasons. “Necessary measures will be taken” against those on the list, Ministry of Commerce spokesman Gao Feng said when he announced it May 31.

2. Who’s on the list?

So far, no one outside China’s government knows. However, the broad definition of “unreliable entities” opens the possibility that a great swath of the global technology industry could be targeted, including U.S. giants such as Alphabet Inc’s Google, Qualcomm Inc. and Intel Corp., as well as non-American suppliers that have cut off Huawei like Toshiba Corp. and SoftBank Group Corp.’s ARM Holdings. The commerce ministry has promised more details “soon.”

3. How might this play out?

That’s unclear, too, but there may be a pointer from China’s recent announcement that it was investigating FedEx Corp. for mis-routing some parcels sent by Huawei. While there’s been no official link to the “unreliable entities” list, state media framed the probe of the American shipping company as a warning to the U.S. after its actions against Huawei. Days later, China fined Ford Motor Co.’s main joint venture in the country for what it said were antitrust violations.

4. So the blacklist is a trade war play?

That’s how it looks, given the timing. Chinese Vice Commerce Minister Wang Shouwen played down concern that the “unreliable entities” list would be used to target foreign companies as a retaliation tool in the trade war, saying that might be an “over-interpretation.” He also said “there’s no grounds to blame China” for starting an investigation into FedEx. Meantime, China is also gearing up to use its dominance of rare earths as a counter in the trade war, according to a salvo of media reports in China.

5. Are all foreign companies vulnerable?

The director of research at the China Society for World Trade Organization Studies, a think-tank affiliated with the Ministry of Commerce, said companies that are investing and producing in China could be spared the “unreliable entity” designation. The list is more likely to target logistics firms and companies that export to China, according to the researcher, Cui Fan.

The Reference Shelf

©2019 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.