China Brief: 30 April – 6 May 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 Chinese reprisals against Canada, security risks found in smart locks, and Shanghai’s adoption of a stricter vehicle emissions standard, among other subjects.

United States, Canada & China – President Trump announces new increase in tariffs on USD200 billion worth of goods from China

China – Security risk: Medium – Consumer rights watchdog finds security risks in smart locks

China – Political risk: Medium – Shanghai set to adopt stricter vehicle emissions standard

Hong Kong – Security risk: Low – Extradition protest organiser threatens further demonstrations

China & Canada – Beijing suspends pork shipments from two Canadian firms

China & Canada – Second Canadian national sentenced to death over drug trafficking



United States, Canada & China – President Trump announces new increase in tariffs on USD200 billion worth of goods from China

6 May: US President Donald Trump on 5 May announced tariffs on USD200 billion of imports from China would be increased to 25 per cent on 10 May, seemingly in response to what he considers to be Beijing’s failure to meet earlier commitments on trade and other areas of dispute between the two countries. Though scheduled trade talks between the US and China on 9 May are set to go ahead, financial and oil markets fell on Trump’s sudden reversal; on 3 May he said talks with China were progressing well. A court hearing in Canada on 8 May regarding a US extradition request for Huawei Technologies Co. Ltd. Chief Financial Officer Meng Wanzhou, arrested in Vancouver in December 2018, is likely to add to the growing tension between Beijing, Washington and Ottawa.

Why it matters: A2 Global notes it is unclear, possibly intentionally so, whether Trump’s reversal represents a negotiating gambit or is in response to other factors. Regardless, Beijing is likely to react to the imminent imposition of additional tariffs. In response, the US is warning similar measures could soon apply to hundreds of billions of dollars of other imports from China. However, the extradition case involving Meng Wanzhou can be expected to have a more immediate impact.

A2 Global warns that Meng’s continued detention by the Canadian authorities at the request of the US Justice Department, which seems probable, is certain to draw a response from China. To date, China has detained two Canadian nationals, sentenced a previously convicted Canadian felon to death and halted or disrupted key Canadian corn and pork products in what is widely viewed as efforts to secure Meng’s release. Further possible measures include more restrictions on Canadian imports, the detention or other forms of harassment of Canadian nationals resident in China – including the use of the immigration or tax systems – and efforts to apply pressure on Ottawa by seeking to influence Canada’s diplomatic allies. A2 Global advises all Canadian companies or Canadian nationals operating or working in China to be aware of these threats and prepare contingency plans to mediate them. Any personnel whose role, function, or conduct may make them liable to scrutiny by the Chinese authorities should be considered for replacement or repatriation.

China – Consumer rights watchdog finds security risks in smart locks

CHINA – Security risk: Medium

5 May: Tests conducted by a state-affiliated consumer rights watchdog have found that around half of commercial password- and fingerprint-activated smart locks have serious security flaws. Smart locks are used to lock and unlock doors using a wireless protocol. The watchdog also concluded that 85.7 per cent of locks activated by microchip-embedded cards in the country are compromised. Companies that scored poorly on some tests include well-established electronics manufacturers, such as Panasonic, Samsung, and TCL. Researchers were able to physically break into many models using commonly found tools. Only around half of the locks tested made an alarm sound when subjected to external force, thus failing to meet Chinese legal standards. However, most smart locks performed well in areas relating to power supply, continued operation during voltage fluctuations, and the protection of users’ personal information.

Why it matters: The watchdog’s results further illustrate the flaws of smart locks, which can be vulnerable to hacking. In an investigation by China’s market watchdog in January, it was estimated that 15 per cent of the top 40 smart lock models tested could be compromised by techniques including the exposure to devices emitting electromagnetic impulses. A2 Global advises security and facilities managers to factor these results into their operational planning, regularly review internal security procedures, and consider using alternative smart locks that meet legal requirements.

China – Shanghai set to adopt stricter vehicle emissions standard

CHINA – Political risk: Medium

5 May: The national VI-b emissions standard for new light-duty vehicles is set to come into effect in Shanghai on 1 July, according to local media reports. The standards are being introduced gradually throughout the country. Oxynitride emissions for vehicles weighing under 3,500kg will not be allowed to exceed 35mg per kilometre, while carbon monoxide (CO) emissions will not be allowed to exceed 500mg per kilometre. This is more severe than the previous standards of 60 and 1000mg, respectively. While close to the US EPA’s Tier 3 standard for CO, VI-b is stricter than the European Union emissions standard.

Why it matters: Light-duty vehicles are a major pollutant – accounting for around 30 per cent of PM2.5 (particulate matter) in the city’s air – according to available statistics. Approximately 3.58 million out of 5 million cars in Shanghai are light-duty vehicles. The emissions standard will only impact new vehicles bought after 1 July. A2 Global advises businesses – including automakers – with operations in Shanghai to ensure their vehicles are compliant with these new standards.

Hong Kong – Extradition protest organiser threatens further demonstrations

HONG KONG – Security risk: Low

3 May: On 2 May, the organiser of a protest on 28 April over the proposed amendment to the territory’s extradition law and the imprisonment of four ‘Occupy’ leaders threatened to continue demonstrations in the city, saying ‘if the government refuses to withdraw the [extradition] proposal, we will have no choice but to ramp up our actions and surround the Legislative Council’. The protest on 28 April saw large numbers of protesters in attendance, with estimates ranging from 22,000 to 130,000 people.

Why it matters: The proposed extradition law would allow those in Hong Kong – including approximately 300,000 Canadians, as well as approximately 200,000 Hong Kongers in Canada – to be sent to mainland China to stand trial. Against the backdrop of strained Sino-Canadian relations and attendant reprisals – primarily due to Canada’s ongoing extradition of Huawei Technologies’ Chief Financial Officer Meng Wanzhou to the United States – an amended extradition law would present a heightened political risk to Canadian and Hong Kongese staff. A2 Global advises human resource managers to factor this risk into their operational planning and monitor the situation for developments. In the event of protests, business travellers should allow for additional journey time, and avoid these as a precaution.

China & Canada – Beijing suspends pork shipments from two Canadian firms

2 May: Reuters news agency reported that China has suspended pork shipments from Canadian food-processing companies Drummond Export and Olymel LP, citing a Chinese customs document and a Canadian government source.

Why it matters: Canada is the world’s third-largest pork exporter, and China the world’s largest pork consumer and producer. The suspension of the two exporters comes against the backdrop of strained Sino-Canadian relations, due to Canada’s ongoing extradition of Chinese technology company Huawei Technologies’s CFO, Meng Wanzhou, to the United States, and likely constitutes a reprisal measure. Previous reprisals have included the detention, deportation, and sentencing to death of Canadians, as well as import bans on two Canadian rapeseed firms in March.

A2 Global reiterates its advice to US and Canadian companies operating in China to factor the possibility of reprisals into their operational planning. 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 provide a pretext for detention or increased regulatory scrutiny.

China & Canada – Second Canadian national sentenced to death over drug trafficking

1 May: A second Canadian national has been sentenced to death over drug trafficking, according to media reports on 30 April. In response, Ottawa has accused Beijing of arbitrarily applying capital punishment, and requested clemency for the accused.

Why it matters: The sentence follows of a similar capital punishment sentencing of a Canadian national in January over drugs-related charges, in what may constitute further retaliation for Canada’s arrest of Huawei Technologies’ CFO Meng Wanzhou in December 2018. Previous reprisals against Canada have included the detention and deportation of Canadians, as well as bans on Canadian rapeseed exporters.

A2 Global notes that drugs-related crimes are punishable by death in China, and that foreigners of other nationalities have previously been sentenced on similar charges. 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.

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