The Ministry of Commerce of China (MOFCOM) announced in a press conference on May 31, 2019 that the Chinese government will introduce an "Unreliable Entity List" regime according to the relevant laws and regulations including Foreign Trade Law, Anti-trust Law and National Security Law. This has caused a lot of speculations who would be up on the list and what could be the implications.
According to the spokesman of MOFCOM, foreign enterprises, organizations or individuals that boycott or cut off supplies to Chinese companies and cause serious damages to due rights and interests of Chinese companies without abiding by market rules or following the spirit of contract or for non-commercial purposes, would be listed as "Unreliable Entities". The spokesman of MOFCOM noted that necessary measures will be taken against the listed entities. The first list and detailed restrictive measures applicable are to be released separately.
In a follow up press conference on June 6, 2019, the MOFCOM spokesman made the remarks that the "Unreliable Entity List" regime, as a system design, is not targeting on any particular industry, nor any specific enterprises, organizations or individuals. This regime is designed to counteract unilateralism and protectionism. The companies who comply with the Chinese laws and regulations should not be concerned about this new regime.
We need to wait for the release of such list and accompanying restrictive measures to know more details in order to fully understand how this regime would work and more importantly be implemented. The "Unreliable Entity List" may be viewed a "negative list" concerning foreign enterprises, organizations or individuals doing business with China (For background, China has maintained a negative list for foreign investment, meaning the industries in the negative list are not allowed for foreign investment). The new regime appears to be a direct retaliation against U.S. just 10 days after U.S. Department of Commerce announced sanctions on Chinese companies under the U.S. Entity List.
Another new regime in pipeline to be watched for is a national list of technology security administration to be released in the near future, which, as first disclosed by the Xinhua News Agency in a one-sentence news report on June 8, 2019, is aiming for effectively preventing and solving national security risks and the National Development and Reform Commission is taking the lead in researching and establishing.
Despite that China has been emphasizing that China will still open its door for foreign investment and consistently stick to globalization strategy, when adding the other signals including three recent safety alerts or reminders issued between June 3 to June 4, 2019 by the Ministry of Education, Ministry of Culture and Tourism, and Ministry of Foreign Affairs as well as the Chinese Embassy in the U.S., respectively, on Chinese studying, traveling and doing business in U.S., it is clear that the trade war is escalating from customs and tariff to non-tariff trade barriers. This would unfortunately add more uncertainty, complexity and risks for U.S.-China or all cross-border transactions and investment involving China. How to mitigate the risks would be paramount for all the U.S. companies that are doing or expect to do business with China. We would be happy to explore any mitigation or alternative ways with our clients.
Read More: Position of China in Trade War
Since the U.S.-China trade war started in March 2018, China has issued two White Papers (China's Position on the China-US Economic and Trade Consultations) on China's stance in the trade war on September 24, 2018 and June 2, 2019, respectively. The second White Paper has indicated that China is preparing for a long and drawn-out trade war.
On June 6, 2019, MOFCOM released a research report on how the United States has benefited from bilateral trade and economic cooperation.
The research report states that both countries have benefited richly from bilateral trade in the past 40 years since the establishment of diplomatic ties in 1979. The research report sets out statistics and facts on the causes of the China-U.S. trade imbalance, and argued that the imbalance in trade is the result of the joint effect of the U.S. export control and market, and is also influenced by many factors such as industrial competitiveness, economic structure, international division of labor, trade policy and the status of the reserve currency of the U.S. dollar. Although China has trade surplus, both parties have benefited from the cooperation.
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