China Brief: 23-29 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 continuing civil unrest in Hong Kong and the Chinese government’s planned creation of a science and tech ethics committee, among other developments.

China – Political risk: Medium – Government to create science and tech ethics committee, increasing scrutiny

Hong Kong – Security risk: Low – Beijing emphasises support for local administration; China’s communist party controlled press calls for ‘forceful action’ against protesters

China – Maritime risk: Low – Military exercises off the coast of eastern provinces heighten maritime risks

China – Political risk: Medium – Authorities suspect FedEx may have withheld over 100 Huawei-linked packages

China – Political risk: Medium – Vehicles with hazardous chemicals barred from eastern province’s motorways during nighttime

Hong Kong – Security risk: Low – Chinese military intervention in Hong Kong possible if unrest continues

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China – Government to create science and tech ethics committee, increasing scrutiny

CHINA – Political risk: Medium

29 July: The government is establishing a national science and technology ethics committee. The committee will ‘improve rules, management mechanisms and supervision of ethics in the field of science and technology’, according to a press release issued on 25 July.

Why it matters: The move comes after a Chinese scientist carried out allegedly state-funded genome-editing research that was controversial among the scientific community in November 2018. This was followed by the government’s drafting of new regulations for biotechnology research in February 2019 and an announcement of more stringent regulations on human genetic material in June. Businesses carrying out research involving assisted reproduction, artificial intelligence, and genome-editing are likely to be impacted in the six-month outlook, possibly in the form of a further tightening of regulations. A2 Global advises businesses – especially those in the pharmaceutical, biotechnology, medical, and artificial intelligence sectors – to ensure they comply with local regulations and factor increased regulatory scrutiny into their strategic planning.

Hong Kong – Beijing emphasises support for local administration; China’s communist party controlled press calls for ‘forceful action’ against protesters

HONG KONG – Security risk: Low

29 July: Senior officials from China’s State Council’s Hong Kong and Macau Affairs Office (HKMAO) on 29 July held a short press briefing in Beijing on the situation in the territory, the first since the bureau was established in 1997. The two officials emphasised Beijing’s support for Hong Kong Chief Executive Carrie Lam, whose attempt to enable suspects held in the territory to be extradited to China triggered the present two-month crisis of often violent protests. They called for the law to be upheld and the focus switched to other social and economic issues. They also blamed individuals in unnamed Western nations for making ‘irresponsible remarks’ about the situation in Hong Kong.

By contrast, the communist party-controlled People’s Daily newspaper today said the Hong Kong police ‘should not hesitate or have any unnecessary “psychological worries” about taking all necessary steps’ to restore order in the territory as soon as possible.

Why it matters: A2 Global notes that the two statements are clearly coordinated and intended to convey both conciliatory and more threatening messages to the protestors and the wider Hong Kong public. The HKMAO position focuses on the Hong Kong administration’s responsibility as an agent of the central government in Beijing to restore order. The People’s Daily emphasis on the police offers a more forceful position, not least in its implication that the present methods of crowd control based on the use of tear gas, baton rounds and other non-lethal methods may not be sufficient to intimidate or quell the protests.

A2 Global warns that the next phase of the crisis will depend to what extent the protest organisers recognise Beijing’s seemingly mixed signalling enables them to reduce tension at street level, or whether they view HKMAO’s unusual intervention as an indication of weakness. Until the protesters’ position is clarified, A2 Global advises companies to protectively assume further protests are probable, leading to even more violent clashes and the possible limited direct intervention by Chinese military personnel. This should include maintaining a high degree of security at premises, monitoring all media sources for updates on any protests, and ensuring the safety and security of staff and business visitors. 
 
China – Military exercises off the coast of eastern provinces heighten maritime risks

CHINA – Maritime risk: Low

29 July: The country’s maritime safety agency has announced that the military will conduct drills in waters near Taiwan. Areas off the coast of the Guangdong and Fujian provinces in south-eastern China and will be closed off from 0600 local time on 29 July until 1800 on 2 August, due to the drills. An area off the coast of the eastern Zhejiang province will also be closed off until the evening of 1 August.

Why it matters: The announcement comes after China’s on 25 July warned that it would be ready for war if there was any move by Taiwan – Beijing views the island as a rebellious province – to become independent. A2 Global advises shipping firms to anticipate heavily reduced access to the area for the one-week outlook, leading to congested shipping lanes and ports. Monitor local shipping news to ascertain the level of access. 


China – Authorities suspect FedEx may have withheld over 100 Huawei-linked packages

CHINA – Political risk: Medium

26 July: Chinese authorities conducting a probe of US multinational courier delivery services company FedEx suspect the firm has illegally withheld packages linked to Chinese multinational technology company Huawei Technologies Co. Ltd. (Huawei). Among alleged violations, FedEx is said to have prevented over 100 Huawei packages from entering China. FedEx has said it will follow up on the findings and that it will continue to co-operate with the authorities.

Why it matters: The report comes after it emerged on 25 July that US electronics maker Flex had held around USD101 million worth of Huawei goods in China for over a month after Trump blacklisted the firm. A Huawei spokesperson confirmed that the company had already retrieved around RMB400 million (USD 58 million) worth of goods and was in the process of retrieving the rest. The alleged disruption to Huawei’s operations highlight the increased supply chain risks for firms that deal with the company. If confirmed, these violations are likely to incur a response by Beijing in the form of tighter regulatory scrutiny or sanctions against the accused foreign businesses – the government is in the process of drafting an entity list akin to the US’s – in the country.

China – Vehicles with hazardous chemicals barred from eastern province’s motorways during nighttime

CHINA – Political risk: Medium

24 July: Authorities in Zhejiang Province announced that from 1 August 2019, between 0000 and 0600 local time, vehicles transporting hazardous chemicals will be barred access from all motorways across Zhejiang province. Vehicles that are on the road during this time will be fined and asked to leave immediately at the nearest exit. Staying at the motorway service areas or toll booths will be strictly prohibited.

Why it matters: The move follows an increasing number of car accidents that involve vehicles transporting hazardous chemicals. In 2017 throughout Zhejiang province, there was a total of 312 car accidents involving vehicles transporting dangerous chemicals, according to official data. This figure increased by 75 percent in the year of 2018, reaching 736, with 14.4 percent happening between 0000 to 0600. A2 Global advises haulage and chemicals businesses to factor the regulations into their operational planning and adjust service availability accordingly. Monitor local government announcements for similar regulatory changes in other regions.

Hong Kong – Chinese military intervention in Hong Kong possible if unrest continues

HONG KONG – Security risk: Low

24 July: A senior officer from China’s People’s Liberation Army (PLA) said on 24 July that personnel from its military garrison stationed in Hong Kong could intervene to maintain public order if requested by the territory’s administration. Foreign envoys estimate the number of PLA personnel in the garrison to be between 5,000 and 10,000.

Why it matters: A2 Global assesses that such a move would prove cathartic in terms of creating a period a relative calm without addressing the underlying issues that now divide Hong Kong’s population. Companies should prepare for a protracted period of often low-intensity protests and actions by opponents of China’s influence and role in the territory, as well as counter moves by groups who support Beijing and the ruling communist party.