China Brief: 2-8 April 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 includes developments on the US response to China's Muslim internment camps, the diplomatic row between China and Canada, US organisations' responses to federal charges brought against Huawei, and measles in Hong Kong. It also features a protest in Taiwan and a Maldivian party's pledge to probe infrastructure projects linked to Chinese loans. 

United States & China - US universities drop Huawei funding due to federal charges 

Maldives & China - Early election results predict win for party pledged to China debt probe 

Hong Kong  - Health risk: Minor - Airport worker contracts measles, highlighting health risks 

Taiwan - Security risk: Minor - Thousands protest in southern city over Chinese policy, heightening travel, political risk 

China & Canada - Third Canadian rapeseed firm at risk of import ban, heightening tensions 

United States & China - US lawmakers urge sanctions against Chinese companies and senior party official

United States & China – US universities drop Huawei funding due to federal charges

8 April: On 8 April, media reports indicated that several major US universities, including Princeton University, Massachusetts Institute of Technology, and the University of California, Berkeley, have dropped their funding from Huawei Technologies Co. Ltd. (Huawei). They have done so over cybersecurity concerns and federal charges against the company. The latter include several allegations such as bank fraud, violation of US sanctions against Iran, and technology theft. The universities are among at least nine that have received a combined total of USD10.5 million from Huawei over the last six years, according to the US Department of Education.

Why it matters: A2 Global advises US-based firms to monitor legislative updates and factor heightened scrutiny of Huawei products into their strategic planning. A2 Global also advises companies in the US which currently have partnerships with Huawei to assess the impact this and other recent developments will have on operations and adjust planning accordingly.

Maldives & China – Early election results predict win for party pledged to China debt probe

8 April: On 8 April, media reports indicated that Maldivian President Ibrahim Mohamed Solih’s Maldivian Democratic Party (MDP) won the 6 April parliamentary elections by a landslide. This was based on preliminary results. The party – whose candidates led in 60 out of 87 constituencies, according to forecasts by local media – has vowed to investigate the true scale of the country’s debt relating to Chinese infrastructure projects.

Why it matters: On 18 February, Maldives’ former president, Abdulla Yameen, was arrested on allegations of corruption in the tourism sector. He denies the charges. Yameen’s presidency was also marred by a debt burden that grew to USD3 billion. The MDP claims this was largely accumulated from Chinese loans for Belt and Road Initiative-linked infrastructure projects involving inflated contracts allegedly benefitting corrupt Maldivian officials. A sizeable MDP majority in the election would likely see investigations stepped up, potentially revealing the full scale of the debt and uncovering further corrupt practices. A2 Global advises companies, especially in the infrastructure sector, to monitor the election results, ensure they carry out third-party due diligence when engaging with local businesses, and, should further corruption allegations emerge, factor a heightened risk of civil unrest into their operational planning.

Hong Kong – Airport worker contracts measles, highlighting health risks 

HONG KONG – Health risk: Minor

7 April: As of 7 April, the number of measles cases recorded in Hong Kong in 2019 has risen to 55, according to the territory’s Centre for Health Protection. This figure includes a worker at Hong Kong International Airport (HKG), bringing the total number of cases this year involving airline or airport staff to 25. The worker had contracted the disease despite a previous vaccination. The city will face a shortage of vaccines during the Easter travel season, due to a supplier’s failure to deliver a batch in mid-April.

Why it matters: A2 Global notes Hong Kong’s medical authorities have extensive experience of dealing with contagious disease outbreaks, much of it gathered during the 2003 severe acute respiratory syndrome (SARS) outbreak that killed almost 300 people in the territory. If the current measles outbreak continues to spread among the hundreds of thousands of workers and residents who may not have been vaccinated against the disease, the authorities may impose stringent border health checks or require proof of immunisation. Companies should ensure their staff either have been vaccinated or are offered the opportunity to be immunised against measles. Symptoms of the highly contagious disease include high fever, coughing, red eyes, and a red blotchy skin rash. More information on the disease is available on the World Health Organization’s website available here

Taiwan – Thousands protest in southern city over Chinese policy, heightening travel, political risk

TAIWAN – Security risk: Minor

7 April: On 7 April, around 3,000 people protested in the southern city of Kaohsiung over China’s proposed ‘one country, two systems’ model of governing the island, currently used for Hong Kong, as well as the KMT opposition party’s proposed peace deal with the mainland. They marched from Labor Park, departing at 1530 local time, reaching the City Hall at 1630. Chinese President Xi Jinping suggested the model in a speech given in January 2019, while the chairman of the more Beijing-friendly KMT suggested a peace deal could be brokered if the party won the 2020 presidential election. 

Why it matters: The protest takes place against the backdrop of heightened tensions between the mainland and the island – the former views the latter as a renegade province – fueled by the crossing of two Chinese fighter jets of the countries’ maritime border on 31 March. Furthermore, concerns over the ‘one country, two system’ framework have increased since a 31 March protest in Hong Kong over the territory’s leaders’ launching of an extradition law. A2 Global notes the march signals the level of widespread public concern over Taiwan’s growing ties to China and threats to the territory’s present status. Further protests are likely, all with the concomitant risk of disorder. Foreign residents and visitors should avoid any protests in the territory, and companies should assess the potential risk such demonstrations may pose to their operations, assets or property.    

China & Canada – Third Canadian rapeseed firm at risk of import ban, heightening tensions

3 April: The Canadian government announced on 2 April that Chinese authorities have filed a non-compliance notification against a third, unidentified, rapeseed firm.

Why it matters: The complaint is likely concerning allegations of contamination. While it does not constitute an import ban, it follows China’s blacklisting of Richardson International Limited, one of Canada’s largest grain processors and the largest fully Canadian-owned exporter on 1 March, and Viterra Incorporated, a further Canadian grain processor, on 26 March. China is Canada’s largest customer for rapeseed; it receives around 40 per cent of Canada’s exports of the product, accounting for 17 per cent of all Canadian exports to China. The bans are likely reprisals over Canada’s ongoing extradition of Chinese technology company Huawei Technologies’ CFO Meng Wanzhou to the United States. Reprisals have also included the detention of Canadian citizens resident in China. A2 Global reiterates its advice to US and Canadian companies operating in China to factor in the possibility of reprisals. These could include delays in granting licences, processing shipments, and approving visas, as well as the detention of Canadian or American citizens in China. A2 Global advises US and Canadian business executives and travellers to assess whether their business activities or relations with Chinese regulatory authorities might provide a pretext for detention or increased regulatory scrutiny.

United States & China – US lawmakers urge sanctions against Chinese companies and senior party official 

3 April: In a bipartisan letter sent to three top advisers of US President Donald Trump, over 40 US lawmakers on 3 April urged the US government to impose sanctions against Chinese companies and a senior Communist Party official under the Global Magnitsky Act. The latter involves US asset freezes, prohibition on conducting businesses with US companies, and travel bans.  

Why it matters: The letter was sent in response to mounting concerns relating to China’s Muslim internment camps in its western Xinjiang Uyghur Autonomous Region, where up to one million mostly ethnic Uyghurs and other Muslims are detained. A report by the Financial Times newspaper from 29 March found that two large US public pension funds retain their stakes in Hikvision, a China-based company involved in producing surveillance equipment for the detention camps, though several US equity investors have withdrawn their holdings. A2 Global reminds foreign businesses operating in Xinjiang to be aware of the potential reputational damage of working with the local governments or local partners while the crackdown continues. Businesses are also advised to monitor the situation for updates, and, should sanctions be imposed, ensure that their sanctions lists are up-to-date.