China is becoming less timid about retaliating economically against the US these days, according to the Economist.
In 2019, as the trade war between the US and China heated up, the People's Daily predicted that China's monopoly on rare earths, minerals vital to the production of modern hardware products, would become a tool for the country to counter US pressure.
According to the Organisation for Economic Co-operation and Development (OECD), the number of Chinese export controls increased ninefold from 2009 to 2020. But these restrictions are unplanned, informal and narrowly targeted. Economists say they are more random than a strategic economic attack.
But recently, as the US has stepped up sanctions against China, Beijing’s response has been swifter and more numerous. After the US blocked Western chip companies from selling China advanced semiconductors and the machinery to make them, it has gone beyond verbal threats.
Painting depicting the US-China trade war. Photo: Financial Times
In early July, China announced its latest export controls, focusing on a pair of metals used in chips and advanced technology. A former US Commerce Department official said the measures were “just the beginning” of China’s retaliation. On July 20, China’s new ambassador to the US, Xie Feng, said his country “cannot remain silent” in the escalating tech war. He hinted that there would be more responses.
This time, Beijing’s move appears to be much more deliberate, according to the Economist . To counter US pressure on the tech sector, Chinese President Xi Jinping has called on regulators to counter Western coercion with international legal action. Lawmakers are drawing up a framework for a more forceful Chinese response to the trade war.
Quite a few policies have come about recently. In 2020, Beijing released a list of “unreliable entities” to punish any company that undermines China’s interests. The export control law, introduced the same year, provides the legal basis for an export licensing regime.
In 2021, the Anti-Sanctions Act allowed retaliation against organizations and individuals who implement sanctions imposed by other countries. This year, a sweeping foreign relations law was enacted, allowing measures to counter a range of economic and national security threats facing the country. It just came into effect on July 1.
On the same day, an anti-espionage law also came into effect, expanding the scope of operations of China's security agencies. Meanwhile, the country has also tightened various cybersecurity and data security rules.
The new policies are not just for show, but are being implemented immediately. In February, Lockheed Martin and a Raytheon subsidiary — two US arms manufacturers — were added to the list of unreliable entities after shipping weapons to Taiwan.
These companies are blocked from new investment in China and trade, among other restrictions. In April, Micron, a U.S. chipmaker, was placed under investigation by China’s cyberspace administration under a new cybersecurity law. Regulators banned Micron’s chips from being used in the country’s critical infrastructure after it failed a security assessment.
The vague wording of the laws makes it difficult for Western companies to assess the potential impact on their business in China. Henry Gao of Singapore Management University, for example, would penalize anyone who acts in a way deemed “harmful to China’s national interests in engaging in international exchanges.”
Some foreign law firms in China have been asked by Western clients to assess the risk of being investigated. One lawyer noted that U.S. technology companies that make hardware components such as memory chips should be on guard against sudden investigations.
Or China’s new law allowing the government to restrict a range of minerals and components is creating uncertainty for foreign buyers. One group affected is Western manufacturers of green energy technology, notes David Oxely, head of climate economics at Capital Economics. Battery manufacturers in particular rely heavily on China across their entire supply chain.
Last year, China’s Ministry of Commerce proposed banning the export of ingot casting technology used to make solar panels. If implemented, the ban could stifle the development of solar technology in the West while increasing demand for finished Chinese solar panels.
Restrictions on two metals, gallium and germanium, could also cause headaches for the United States. Effective August 1, exporters will need to apply for licenses to sell the metals to foreign customers. China produces 98 percent of the world’s raw gallium, a key component in advanced military technology, including next-generation U.S. missile defense systems and radars.
A shock to gallium supplies could cause long-term problems for the US defense industry, according to CSIS, a Washington-based think tank. Moreover, a gallium-based compound, gallium nitride, could underpin a new generation of high-performance semiconductors.
But China is also said to tread carefully with its retaliation. Peter Arkell, president of the China Global Mining Association, noted that the country re-imports many finished products made overseas using rare earths, so bans could backfire on Chinese companies.
Full export bans would also push the West to build its own matching production capacity and look for alternatives, according to Ewa Manthey, commodities strategist at Dutch bank ING. This would weaken China’s power in the long run.
China’s practice of labeling Western companies with large operations as unreliable entities could also put thousands of Chinese jobs at risk. That’s why, rather than blacklisting the entire Raytheon subsidiary of Pratt & Whitney, which has 2,000 employees in China, the Commerce Department limited the ban to the company’s defense business.
So far, the policy response has been implemented only by China’s Ministry of Commerce and Ministry of Foreign Affairs. The fear among Western businesses, according to Henry Gao, is that Beijing’s more hardline agencies will step in. If the tech war escalates further, China’s National Security Commission could take the lead in economic retaliation. If that happens, the consequences are much bigger than just for American and Chinese CEOs.
Phien An ( according to The Economist )
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