China Brief: 9-15 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 further safety inspections in China, a heightened protest risk in Hong Kong after 'Occupy' leaders were found guilty on several charges, a heightened anti-Chinese protest risk in the Philippines ahead of the May elections, the United States Department of Commerce adding 37 Chinese entities to its 'unverified' list, a Hong Kong watchdog finding excessive mercury levels in over half of tuna samples, and Australia's rejection of China's complaint at the World Trade Organization. 

Australia & China - Australia rejects China's WTO complaint, heightening tensions 

Hong Kong - Health risk: Minor - Watchdog finds excessive mercury levels in over half of tuna samples 

United States & China - Department of Commerce adds 37 Chinese entities to unverified list 

Philippines & China - Potential for increased anti-Chinese protests ahead of May elections 

Hong Kong - Security risk: Low - Protest risk after Occupy leaders found guilty on number of charges 

China - Political risk: Medium -Market regulator announces launch of nationwide product safety inspections

Australia & China – Australia rejects China’s WTO complaint, heightening tensions

15 April: The Australian government on 14 April announced that it will maintain its stance with regards to its 23 August 2018 ban on Huawei’s bid to provide the country’s 5G mobile infrastructure, despite China’s lodging of a complaint at a World Trade Organization (WTO) meeting on 12 April.

Why it matters: The WTO incident constitutes China’s first formal complaint, signalling that Beijing may assume a more aggressive stance on the matter towards the next Australian government. Despite the fact that Australia insists the ban was not targeted at any specific nation or telecommunications company, as well as an exemption to WTO rules stating that members can discriminate between trading partners when there is a national security concern, this escalation of the dispute is likely to worsen ties between Australia and China over the next few weeks and months. A2 Global advises Australian firms to monitor updates and factor heightened scrutiny of Huawei products into their strategic planning. A2 Global also advises companies in Australia that currently have partnerships with Huawei to assess the impact this and other recent developments will have on operations and adjust planning accordingly. Businesses using telecommunications equipment supplied by Chinese companies should review whether this could prejudice their chances of winning tenders issued by Western governments.

Fish Food Plate 

 Hong Kong Watchdog finds excessive mercury levels in over half of tuna samples 

HONG KONG – Health risk: Minor

15 April: On 15 April, the territory’s consumer watchdog announced that it had found excessive amounts of mercury in over half of tuna samples tested. Mercury levels six to 196 per cent higher than the standard were found in 10 out of 19 of sashimi tuna samples. These were sourced from takeaway outlets, supermarkets, and restaurants. A ‘small’ parasite presence was also found in some of the samples, which also included salmon. The authority warned that eating raw fish can increase the risk of Anisakis infection, a roundworm-linked disease that can cause vomiting, abdominal pain, and nausea, within one to 12 hours of consumption.

Why it matters: Mercury can be damaging to the nervous system, especially to unborn foetuses. A2 Global advises businesses to ensure they are complying with food safety requirements. Businesses sourcing their tuna from Hong Kong should consider alternatives and adjust their supply chain accordingly. Business travellers are advised to limit their intake of tuna until standards improve.

United States & China – Department of Commerce adds 37 Chinese entities to ‘unverified’ list

11 April: On 10 April, the US Department of Commerce’s Bureau of Industry and Security (BIS) added 37 Chinese companies and schools to its Unverified List (UVL) of entities that US companies should treat with caution. These include Chinese schools and companies operating in automotive manufacturing, screen technology, aviation, optics, electronics, and machine tools. The updated list takes effect today on 11 April.

Why it matters: The addition of an entity to the UVL constitutes a de facto embargo, due to the licence-related complications involved with suppliers engaging with the entities on the list. A2 Global advises companies to factor the revisions into their operational and logistical planning, and assess the impact they will have on their supply chain. Companies should also factor the revisions into their compliance- and third-party due diligence procedures when engaging with Chinese organisations. They can be found on the Federal Register website. For guidance on the UVL, consult the BIS website.

Philippines & China – Potential for increased anti-Chinese protests ahead of May elections

10 April: Around 1,000 protesters gathered outside China’s embassy in the capital Manila on 9 April, to demonstrate their opposition to what many Filipinos view as Beijing’s increasing influence over their country. The protest, which was peaceful, reflected growing local opposition to Philippine President Rodrigo Duterte’s policy of seemingly accommodating Beijing’s efforts to appropriate huge areas of what the UN considers international waters in the South China Sea. Locals have also voiced opposition over the large number of Chinese nationals working illegally in the Philippines.

Why it matters: Duterte’s opponents are raising a perceived threat from China in an effort to undermine the president’s support ahead of the 13 May mid-term elections – widely viewed as a test of his popularity. This increases the risk of wider instability, as anti-Chinese sentiment directed at the wealthy local ethnic Chinese minority remains a potent source of mobilisation among the poor majority. This is heightened by opposition to Beijing’s activities in the South China Sea, and its challenge to Philippine sovereignty. A2 Global assesses that anti-Chinese rhetoric will increase in the election campaign, including further protests that could result in violent confrontations between demonstrators and the security forces. Foreign companies should assess their vulnerability to such events, while seeking to protect local and overseas staff – especially those that are ethnically Chinese – in the event of any overt anti-Chinese unrest.

Hong Kong – Protest risk after ‘Occupy’ leaders found guilty on number of charges

HONG KONG – Security risk: Low

9 April: A Hong Kong court on 9 April found nine leaders of the 2014 pro-democracy ‘Occupy’ or ‘Umbrella’ movement guilty of a number charges relating to the 79-day protests that disrupted the territory’s business and administrative districts. Some of the charges, which ranged from incitement to causing a public nuisance, carry maximum sentences of seven years imprisonment. Supporters of the accused gathered outside the court in the West Kowloon district, where a strong police presence was evident.

Why it matters: A2 Global notes the type and length of the court’s sentence will largely determine the immediate- and medium-term impact of the trial. It is unclear when the court will pronounce sentence on the nine, but A2 Global assesses any sentence that includes imprisonment will lead to large protests in the same districts on Hong Kong island that became the focus of the original Occupy movement. US and British politicians have condemned the verdicts, although this is unlikely to translate into international action against Hong Kong. Police will likely be instructed to maintain order using whatever level of force required, reflecting the local administration’s concerns over the Chinese government’s response to any serious disorder. A2 Global does not anticipate a similar level of participation or potential unrest as in 2014, but nevertheless strongly advises foreign business staff or visitors to avoid any large gatherings and concentrations of police personnel.

China – Political risk: Medium – Market regulator announces launch of nationwide product safety inspections

CHINA – Political risk: Medium

9 April: On 8 April, China’s State Administration for Market Regulation, the country’s market regulator, published a notice detailing the launch of nationwide safety inspections. These are due to last until October, and will focus on industrial products in high-risk areas, such as hazardous chemicals and food packaging. Failure to comply will result in the withdrawal of operations licences.

Why it matters: The announcement follows the country’s safety watchdog launching month-long nationwide inspections of mines, hazardous chemicals, and fire and transportation safety, on 27 March. This was in response to a deadly chemical blast in Yancheng, in the eastern-central province of Jiangsu, on 21 March. A2 Global advises foreign companies with operations in China to regularly audit health and safety practices at their sites to ensure that they are compliant with all relevant duty of care obligations. These should be undertaken by specialists, and supported with comprehensive policies. A2 Global advises businesses to also ensure the maintenance of compliance procedures and implementation of due diligence when engaging with third parties to avoid reputational damage. Companies sourcing products from China are advised to factor the risk of industrial accidents into their strategic planning.