China Brief: 16-22 July 2019

A2 Global’s China Brief contains assessments of events and policies that may impact commercial interests, personnel, and assets throughout Greater China. This edition looks into some of Beijing’s new policies, an attack on protesters in Hong Kong, and an industrial accident in central China, among other developments.

Hong Kong – Security risk: Low – Police accused of colluding with alleged ‘triad’ members following attack

China – Political risk: Medium – Beijing imposes tariffs on steel products from EU and three Asian countries

China – Travel risk: Medium – Gas plant explosion in central China kills 15, injures over 100

China – Security risk: Medium – Hong Kong actor stabbed in mainland China during event held by home company

China – Political risk: Medium – Beijing restricts pollution in industrial parks across industrialised areas

China – Political risk: Medium – Government imposes deadlines for trademark and patent applications

China & Malaysia – Kuala Lumpur seizes BRI-linked firm’s assets

Hong Kong – Police accused of colluding with alleged ‘triad’ members following attack

HONG KONG – Security risk: Low

22 July: The police have been accused of colluding with local organised crime groups (‘triads’) after people using a mass transit rail (MTR) station on 21 July were attacked by scores of men armed with iron bars and wooden staves. The men targeted people at the Yuen Long MTR station in the New Territories that appeared to identify as protesters opposed to China’s role in Hong Kong. The police, who took around 30 minutes to arrive at the MTR station, deny collusion with the triads, maintaining that their resources were focused on serious unrest on Hong Kong island about 20 km away.

Why it matters: Widespread public perception of police collusion with triad groups will be reflected in future protests, discourse over Hong Kong’s relationship with China, and international perceptions of the territory’s stability and status. Future protests, while probably smaller, will become more confrontational as attitudes within the police and among activists harden. There is also the potential for more extreme acts of violence, by protesters or provocateurs, which threaten the wide community. A2 Global advises companies to be aware of this developing threat and amend their security and operational planning accordingly.

China – Beijing imposes tariffs on steel products from EU and three Asian countries

CHINA – Political risk: Medium

22 July: Beijing on 22 July announced anti-dumping tariffs of 18.1 per cent to 103.1 per cent on some stainless steel products imported from companies in the EU, Indonesia, Japan, and South Korea. The tariffs come into effect on 23 July.

Why it matters: The move follows Beijing’s anti-dumping tariff hikes on some other steel products imported from the EU and the US in June, which were also caused by pressure from the country’s domestic steel industry. China is the world’s largest steel consumer and producer, and imports of stainless steel in 2018 were up 53.7 per cent from 2017. The targeted products are primarily used in industries such as power, rail, containers, and shipbuilding. A2 Global advises businesses – particularly those in major steel consuming industries such as machinery, transport, and construction – to factor higher prices into their purchasing strategies. Logistics managers sourcing the targeted products should assess the impact of the increased tariffs on their supply chain, and, if necessary, seek alternative suppliers.

China – Gas plant explosion in central China kills 15, injures over 100

CHINA – Travel risk: Medium

20 July: Fifteen people were killed, 15 seriously injured, and hundreds left with light injuries following an explosion at a gas plant operated by Henan Coal Gas (Group) Co., Ltd. in Yiman, a city in the country’s central Henan province, on 19 July. The blast triggered a tremor and shattered windows and doors of nearby residential homes and businesses as far as 3 km away. A group of environmental experts stationed in the city have been monitoring air and water for contamination by the gas. Local authorities claim that the monitoring suggests that ‘both are within standards’ but will further evaluate the soil. All production has been halted and nearby roads have been closed. An investigation into the cause of the explosion is under way.

Why it matters: Industrial accidents are fairly common in China, where safety regulations are often lax and storage of explosive materials is poorly managed. A database from the Beijing-based Institute of Public and Environmental Affairs (IPE) – an influential non-governmental organisation with links to the Chinese government – shows that the gas plant had a history of excessive emissions and was fined multiple times by local authorities between 2014 and 2016. According to the IPE, this suggests that ‘poor management’ may have caused the explosion. In March 2019, an explosion at a chemical plant in the eastern Jiangsu province killed 78 people and injured hundreds. A2 Global advises businesses travellers to monitor updates and avoid the area around the blast site as a precaution to avoid potential health risks. Companies are reminded to comply with national environmental regulations and conduct thorough due diligence before engaging with hydrocarbon suppliers.

China – Hong Kong actor stabbed in mainland China during event held by home company

CHINA – Security risk: Medium

20 July: Simon Yam, a famous Hong Kong actor, was stabbed by an unknown assailant during a promotional event held by Easyhome, a well-known Chinese hardware company in Zhongshan, Guangzhou. Yam sustained non-life-threatening injuries to his hands and abdomen. Police later stated that the suspect was identified as having mental health issues but did not disclose his identity nor motive, claiming the case is still under investigation.

Why it matters: Yam has been popular in mainland China for his support of Beijing during the Hong Kong protests, decreasing the likelihood that the attack was politically motivated. The pre-meditated attack was carried out by a mentally deranged individual who mistook Yam for another person against whom he had personal grievances, according to local media reports. Security work in the country is often outsourced to poorly regulated and inexperienced third-party security companies. A2 Global advises businesses to thoroughly vet security companies that provide close protection officers and conduct comprehensive threat assessments.

China – Beijing restricts pollution in industrial parks across industrialised areas

CHINA – Political risk: Medium

July 19: The government will limit pollution in industrial parks located in:

Beijing-Tianjin-Hebei national capital region and the neighbouring region,
the Yangtze River Economic Zone, and,
the Guangdong-Hong Kong-Macao Greater Bay Area (GBA),
according to a notice issued by the National Development and Reform Commission and the Ministry of Ecology and Environment. Key focus will be given to steel, metallurgy, electroplating, and construction material parks in the Beijing-Tianjin-Hebei region, chemical engineering and dyeing parks in the Yangtze River Economic Zone, and electroplating and dyeing parks in the GBA.

Why it matters: Under this new initiative, heavily polluting factories in the aforementioned regions may be required to limit their output or halt production. A2 Global advises firms whose supply chains include these factories to consult their local counterparts to understand the potential impact on operations. Companies in the affected areas should ensure compliance to avoid incurring punitive measures and exposure to reputational risks, as well as factor reduced output into their strategic and operational planning.

China – Government imposes deadlines for trademark and patent applications

CHINA – Political risk: Medium

19 July: The country’s cabinet has set the time limit for patent applications to 17 and a half months, and the time limit for trademark applications to five months, according to a statement by the government on 17 July. This is in order to ‘support the healthy development’ of businesses in the country’s ‘platform economy’ – including bikesharing, e-commerce, and food delivery apps – by protecting intellectual property (IP) rights.

Why it matters: The policy comes amid the Sino-US trade war, which has included accusations towards Beijing by Washington of IP theft. Despite Beijing’s passing of a new foreign investment law that includes provisions on forced technology transfer in March, a recent report by the European Union Chamber of Commerce revealed that members were reporting an increase in the practice. There have also been multiple alleged cases of China-related IP theft at US-based companies in recent months. In October 2018, China opened its first office for protecting its companies’ IP rights abroad, and in December 2018, Beijing announced higher fines for patent infringement. A2 Global advises businesses – especially in the technology sector – to factor the new time limits into their strategic planning.

China & Malaysia – Kuala Lumpur seizes BRI-linked firm’s assets

17 July: Kuala Lumpur announced on 15 July that it had seized over MYR1 billion (USD243.5 million) from Chinese state-owned company China Petroleum Pipeline Engineering (CPPE) bank account due to lack of progress on pipeline projects. On 17 July, Beijing said it believed that Kuala Lumpur’s dispute with CPPE, which is building two multi-billion dollar gas pipeline projects in the country as part of the Belt and Road Initiative (BRI), can be resolved through ‘friendly consultation’ and that the project was ‘carried out in accordance with the contract’.

Why it matters: Following Prime Minister Mahathir Mohamad’s election victory over Najib Razak in 2018, Malaysia has suspended two projects, worth an estimated USD2.3bn, for which CPPE was the lead contractor. These had been agreed to during Najib’s tenure, and Mahathir had promised to undo the ‘unfair’ BRI projects. Kuala Lumpur has said it is investigating whether any of the money from BRI-linked projects was used by Najib’s government to repay debts of Malaysia’s 1MDB investment fund; Najib is currently on trial for multiple 1MDB-linked corruption charges. Kuala Lumpur’s asset seizure indicates an increasingly hostile approach to BRI-linked projects, and highlights associated political risks. A2 Global advises Chinese businesses with operations in Malaysia to factor the heightened expropriation risks into their strategic planning.