The United States government set off alarms in Beijing with last week’s addition of Chinese entities to an export watch list, as the move tightened the stranglehold on China’s technological supply chain by hitting at its most vulnerable parts.
The US Commerce Department added 33 Chinese entities, mostly hi-tech manufacturers, including those that produce laser components and pharmaceuticals, government research labs and two universities to its unverified list (UVL), citing the inability to verify their end users. Chinese companies on the list must supply additional documents and be subject to other checks to deal with US suppliers.
The move has “created new shocks to the stability of the supply chain,” said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.
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The list would create a wedge in the cooperation between China and the US, as it will “adversely affect future international economic cooperation and harm the interests of all parties,” he said.
The UVL, one of several lists published by the US Commerce Department, differs from the better-known Entity List, which restricts access to US exports unless the exporter secures a license. Semiconductor Manufacturing International Corp. (SMIC), China’s largest chip maker, and the country’s largest telecommunications infrastructure builder Huawei Technologies are among 300 Chinese companies on that Entity List.
The new names on the UVL are not well-known brands like SMIC or Huawei, but they belong to a group of industrial and technology businesses that Beijing is counting on to help China survive, or even win, its technology rivalry against the US†
Shanghai Micro Electronics Equipment (Group) lies at the heart of China’s drive to be self-sufficient in semiconductor production, and represents the country’s best hope to produce lithographic machines, a critical part in semiconductor manufacturing.
Wuxi Biologics, the only pharmaceutical producer on the list, is researching and conducting clinical trials into the production of Covid-19 antibody drugs. AECC South Industry and China National Erzhong Group Deyang Wanhang Die Forging are important suppliers in China’s aviation industry.
While it’s unclear how much these companies are relying on US components or software to keep their production and research afloat, it’s clear that China’s access to US solutions in these key areas will be affected.
Even though it is not an outright ban, inclusion on the UVL means the process to acquire certain US technologies would become lengthier and more complex under the weight of more documentation, said Gary Ng, senior economist for Asia Pacific at investment bank Natixis.
“The renewed usage of UVL list also reflects there is no reset in the US-China relationship, which can intensify with the reignited talks on the phase one trade deal and the looming midterm election in November 2022″, Ng said.
Beijing Shiweitong Science & Technology (SWT) is one of China’s leaders in optoelectronic devices, with exports to Japan, the US and Europe. Its products have been widely used in high-speed railway, oil exploration, smart power grid, radio and televisions.
Guangzhou Hymson Laser Technology is a supplier of laser cutting machinery to Foxconn and Huawei, and is a powerful player in the niche market of assembling the automated machines for the production of lithium battery packs. China is the world’s largest market for electric vehicles, where three of every five new cars on the country’s roads are expected to be run on batteries by 2030, according to UBS.
ChuZhou HKC Optoelectronics Technology, which sources about 40 per cent of glass substrates from a US supplier, is challenging the dominant position of South Korean competitors among the three top Chinese LCD panel producers.
Technology and specialty equipment produced by Zhuzhou CRRC Special Equipment Technology, one of Hunan’s “specialised, refined, unique and innovative” companies, have been largely used in high-speed rail systems, urban transport systems and automated production systems in factories.
The US has weaponized its export control regulation for “political repression” and “economic bullying,” China’s Commerce Ministry said last week, adding that the move was detrimental to both Chinese and US interests.
The US government has been generalizing the concept of national security to increase trade restrictions in recent years, state-owned China Daily newspaper reported, quoting Cui Fang, a professor at the University of International Business and Economic’s School of International Trade and Economics in Beijing.
Investors of listed companies affiliated with some of the named entities rushed to sell their holdings. Hong Kong-listed Wuxi Biologics plunged more than 34 per cent on Thursday, although some analysts believed that the reaction was overdone.
“Looking at Wuxi’s long-term business model, its fortunes lie on the customer side, not the supplier side,” Morningstar’s senior equity analyst Jay Lee said in a research note. “Even if we imagine a hypothetical scenario where Wuxi faces a long-term ban on purchasing US technology, we believe it can eventually overcome the disruption and find other suppliers.”
To be sure, companies on the UVL could be removed under certain conditions. In October 2020, the US government removed 40 entities from the list, including a number of Chinese schools and institutions.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMPs facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
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