China Brief: 6-12 August 2019
China – Political risk: Medium – Social credit blacklist for logistics sector to heighten regulatory scrutiny
China – Political risk: Medium – Multinational fashion brands face backlash over politically sensitive geography
Hong Kong – Political risk: Minor – Chinese media toughens criticism of foreign firms’ alleged protest role
China – Political risk: Medium – Websites of over 29 Fortune 500 companies remove politically sensitive maps
Hong Kong – Travel risk: Low – Washington upgrades travel advisory for territory
China & Brazil – Postponing of minister’s visit elevates operational risks for meat sector
China & United States – In tariff retaliation, Beijing suspends purchases of farm products
China & Taiwan – China's film regulator bans mainland Chinese movie industry from awards hosted in Taiwan
China & United States – US declares China a ‘currency manipulator’
China & United States – Flag carrier suspends Beijing-Haiwaii flights amid escalating trade war
China – Social credit blacklist for
logistics sector to heighten regulatory scrutiny
CHINA – Political risk: Medium
12 August: A draft of a document of companies to be added to a social credit blacklist of the logistics sector remains open for comment until 14 August. The document was introduced by the National Development and Reform Commission (NDRC) – the country’s macroeconomic management agency – on 1 August. The list, which will be published on the Credit China website for blacklist and social credit information, will focus on companies that have a history of mishandling personal data; infractions include the illegal distortion, disclosure, or collection of personal data without consent.
Why it matters: China’s logistics sector is largely driven by its large e-commerce market, in which leaking and mishandling of private information has been a recurring issue. The move is the latest in a series of government steps to curb the mishandling of personal data; regulators have established a cross-ministry task force to probe applications from companies, including voice recognition firm iFlytek and Alibaba’s food delivery platform Ele.me, which collect more data than is allowed. Companies included on the blacklist will be subject to penalties by multiple government organisations if blacklisted by one, indicating an extensive heightening of regulatory scrutiny. A2 Global advises logistics businesses to factor the blacklist into their strategic planning.
China – Multinational fashion
brands face backlash over politically sensitive geography
CHINA – Political risk: Medium
Why it matters: The actions suggest that the government is exerting pressure on media personalities to force multinational businesses to ensure their products adhere to local sensitivities regarding political geography. A2 Global advises businesses to ensure that political geography – including lists of countries and maps presented on websites and other resources such as product designs – reflect local sensitivities to mitigate political and reputational risks.
Hong Kong – Chinese media toughens
criticism of foreign firms’ alleged protest role
HONG KONG – Political risk: Minor
9 August: The Global Times – an English-language newspaper controlled by the Communist Party of China – on 8 August warned Hong Kong’s flag carrier, Cathay Pacific Airways, it would ‘pay a painful price’ for its alleged actions in supporting protests in the territory, citing incidents in which airline staff appeared to support protesters. Other sources noted that China was also angered by the airline’s link to air traffic controllers it employed, and whose absence during the 5 August ‘general strike’ led to the closure of one of Hong Kong International Airport’s (HKG) two runways.
Why it matters: Cathay Pacific is largely owned by the UK-based Swire Group, with state-owned Air China as another major shareholder. The Global Times is used by the CPC to signal displeasure with the actions of foreign states and companies, often prior to more direct action. Such moves would be in line with A2 Global’s repeated warnings. Beijing’s anger over the Hong Kong protests, and the limited number of options available that would not cause China great international harm, makes foreign companies vulnerable as a means to pressure from overseas governments. A2 Global warns that Beijing can be expected to increase its rhetoric against vulnerable companies, with more material action also probable if the crisis continues.
China – Websites of over 29 Fortune
500 companies remove politically sensitive maps
Why it matters: In recent years, many international companies have incensed the Chinese government by, for example, including Taiwan and Hong Kong on country lists. In the first half of 2018, an apparent infraction by hotel chain Mariott International – which was forced to temporarily shut down its website and application – resulted in a crackdown on around 40 multinational companies’ descriptions of political geography. The government’s recent actions indicate heightened scrutiny for businesses in relation to political geography. A2 Global advises businesses to ensure that political geography, including lists of countries and maps, presented on websites and other company resources reflect local sensitivities to mitigate political risk.
Hong Kong – Washington upgrades travel
advisory for territory
HONG KONG – Travel risk: Low
Why it matters: The upgrade follows several other countries’ increased travel warnings for the territory, including Australia, Ireland, Japan, Singapore, the United Arab Emirates, and the United Kingdom. The warnings highlight the growing travel risk in Hong Kong. Ongoing mass protests which erupted against the government’s proposed amendment to the territory’s extradition law show little sign of abating in the one-month outlook. A2 Global advises travel managers to ensure staff are aware of the elevated travel risk when considering visits to the territory.
China & Brazil – Postponing of minister’s
visit elevates operational risks for meat sector
7 August: A spokesman at Brazil’s agriculture ministry on 6 August said that a planned visit to China by agriculture minister Tereza Cristina Dias has been postponed from August to September.
China & United States – In tariff retaliation,
Beijing suspends purchases of farm products
7 August: The Chinese government on 6 August suspended purchases of US farm products, in retaliation for 10 per cent tariffs on USD300 billion worth of Chinese imports the US government announced last week.
Why it matters: The move comes amid an escalating US-China trade war; the US on 5 August labelled China a currency manipulator, and last week’s high-level negotiations in Shanghai failed to produce any tangible concessions. As China is a major destination for US farm products, the suspension will significantly impact the US agricultural sector. The decision indicates that the Chinese government is likely to impose tariffs on US farm products in the one-month outlook, given a weakening demand by Chinese consumers – US exports to China were down by USD1.3 billion in the first half of 2019 – and an increased sourcing of products including soybeans from alternative markets such as Brazil. A2 Global advises businesses in the agricultural industry to factor the suspension as well as likely tariffs into their operational and strategic planning.
China & Taiwan – China's film regulator bans
mainland Chinese movie industry from awards hosted in Taiwan
7 August: China's film regulator on 7 August announced that actors, directors, and movies from mainland China are blocked from participating in the annual Taipei Golden Horse Film Festival and Awards on 23 November 2019 in Taiwan. Founded in 1962, the Golden Horse awards is one of the most prestigious awards in the Chinese-language film industry, which is often depicted as the ‘Chinese Oscars’. Mainland authorities did not provide a reason for the boycott and the Golden Horse awards’ organizing committee said the mainland’s decision was ‘regrettable’.
China & United States – US declares China a
Why it matters: The designation is the US’s first since 1994, when it also accused China of devaluing its currency to achieve an ‘unfair’ competitive advantage in international trade. While the designation has little practical effect beyond prompting Sino-US talks at the IMF, which were already underway prior to 5 August, it is politically significant, demonstrating a further escalation of mutually hostile trade practices. China’s devaluation came after the US announced 10 per cent tariffs on USD300 billion of Chinese products on 1 August.
Companies with interests in Sino-US trade should anticipate further retaliatory measures from Beijing in the one-month outlook. Such measures would likely include further devaluations of the yuan, the imposition of new and higher tariffs on US products, and disruptive trade practices including heightened regulatory scrutiny of US products. Affected companies should assess the impacts such variable retaliation has on financial and strategic plans, and supply-chain security.
China & United States – Flag carrier suspends
Beijing-Haiwaii flights amid escalating trade war