China Brief: 7-13 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 looks into tensions between China and the United States, another anti-extradition protest in Hong Kong, and an attack targeting Chinese nationals in Pakistan.

China & Pakistan – Operations at key port suspended in wake of attack on hotel

China & Iran – Washington sanctions hit industrial metals exports

Hong Kong – Travel risk: Low –Anti-extradition protest occurs outside of legislature, further demonstrations possible in coming weeks and months

China & United States – Communications regulator blocks China Mobile USA’s entry bid

China & United States – US government imposes increased tariffs on USD200 billion worth of goods from China; Beijing certain to retaliate

China & United States – US Navy and allies conduct drills in disputed South China Sea

 


 

China & Pakistan – Operations at key port suspended in wake of attack on hotel

13 May: Media reports on 13 May said all roads leading to Baluchistan province’s Gwadar port remain closed following an attack on one of the town’s main hotels on Saturday. The assault on the five-star Pearl Continental Hotel by three men belonging to the Baluch Liberation Army (BLA) separatist group killed four hotel workers and a member of the security forces. All the attackers were also killed in the incident, but no guests were reported harmed. Gwadar is a key location in China’s Belt and Road Initiative (BRI) infrastructure programme, and the BLA stated that the attack was specifically intended to target Chinese nationals staying in the hotel. The Pakistani authorities have deployed thousands of police and military personnel throughout Gwadar, with protection of Chinese workers employed on China-Pakistan Economic Corridor projects given a high priority.

Why it matters: A2 Global notes the attack follows a pattern of the BLA and other separatist groups targeting Chinese personnel and companies throughout the province and beyond. Given the apparent willingness of members of these groups to sacrifice their lives, further attacks against Chinese and any other foreign companies and their staff can be expected in Baluchistan and other locations in Pakistan – notably the port city of Karachi. Foreign companies with operations in Baluchistan should conduct detailed risk assessments prior to deploying personnel to the province, closely monitor events in the region, and have evacuation plans in place in the event that the threat to their staff, assets, and operations increases.

China & Iran – Washington sanctions hit industrial metals exports

10 May: The US government on 9 May imposed new sanctions on Iran, impacting its iron, steel, aluminium, and copper sectors.

Why it matters: Iran depends heavily on industrial metals exports. These amount to ten per cent of its export economy – Iran’s second-largest source of export revenue after petroleum. The decision by the US to introduce sanctions further deteriorates relations between the two countries. The new sanctions come after President Hassan Rouhani announced that Iran will partly withdraw from the nuclear deal agreed in 2015 with the US, EU, France, UK, Germany, Russia, and China. The US unilaterally pulled out of the agreement in 2018. China is the largest consumer of Iran’s crude oil – importing around 500,000 barrels per day – and is opposed to the sanctions. This is due to its energy partnership with Iran, as well as Iran’s involvement in the Belt and Road Initiative – the Chinese government’s development project. The move may reduce the likelihood of a satisfactory conclusion to ongoing China-US trade negotiations. A2 Global advises businesses to update sanctions lists to reflect the US’s decision. Firms in the metals sectors should review their supply chains to ensure compliance with the new sanctions.

Anti-extradition protest occurs outside of legislature, further demonstrations possible in coming weeks and months 

HONG KONG – Travel risk: Low

10 May: Over 1,200 protesters gathered near the territory’s legislature on 10 May, according to police. This was in support of the pro-democracy politicians’ control over the committee vetting the proposed amendment to the territory’s extradition law.

Why it matters: The protest follows a previous peaceful demonstration on 31 March in opposition to the amendment, which would allow suspects – including foreigners and travellers – to be extradited to China for their hearing. Protesters fear an erosion of the current British-based legal system through potential exposure to the opaque Chinese court system, which some worry could be influenced by political motivations. As a final decision has yet to be made, protests are likely to continue within the next few weeks and months. In the event of protests, A2 Global advises business travellers to allow for additional journey time, and avoid these as a precaution. Businesses – especially those with Canadian or Hong Kongese staff – should monitor the situation for updates and assess the vulnerability of their staff to political risks.   

China & United States – Communications regulator blocks China Mobile USA’s entry bid

10 May: On 9 May, the US Federal Communications Commission (FCC) voted unanimously to block an application from China Mobile USA, a US subsidiary of a Chinese state-owned telecommunications giant, to provide international calls in the US. FCC chairman Ajit Pai cited national security concerns behind the decision.

Why it matters: The verdict comes amid heightened tension in the bilateral relationship, particularly related to US criticism of China’s trade practices and the participation of Chinese telecommunications companies in the construction of 5G networks in Western countries. This has been exemplified by US efforts to restrict communications giant Huawei Technologies Co. Ltd.’s participation in allies’ telecommunications networks. A2 Global notes that the US and its allies, particularly those of the Five Eyes intelligence grouping, are likely to increase scrutiny of Chinese firms’ attempts to enter such markets in the medium- and long term. Western-based companies should conduct a thorough risk assessment prior to partnering with such firms.

China & United States – US government imposes increased tariffs on USD200 billion worth of goods from China; Beijing certain to retaliate

10 May: The US government on 10 May announced tariffs on USD200 billion of imports from China would be increased from 10 per cent to 25 per cent. The tariffs apply on cargoes leaving China after 1201 local time on the same day. The decision to raise tariffs follows President Donald Trump’s allegation that Beijing had failed to meet earlier commitments on trade and legal enforcement, as well as other areas of dispute between the two countries. A similar increase could also be applied to a further USD325 bn of Chinese imports into the US ’shortly.’

Why it matters: A2 Global warns that Beijing is certain to retaliate, although the large trade gap between the two countries places China at a disadvantage. In 2018, US imports from China totaled USD540 bn, effectively the amount covered by the new and potential tariffs, of which around USD150 bn comprised computers and cell phones. China’s imports from the US in the same year totaled USD120 bn, including USD16 bn worth of commercial aircraft and USD12 bn of soybeans. As a result, A2 Global warns Beijing may adopt a more asymmetric response by targeting US interests and individuals within China, much in the way it has done with Canada in its efforts to secure the release of a senior official from the Huawei Technologies Co. Ltd. telecommunications group held in that country following an extradition request from Washington. We advise US companies in China to assess their vulnerabilities to such a threat to their expatriate staff in China and potential visitors.

China & United States – US Navy and allies conduct drills in disputed South China Sea

9 May: From 2-8 May, the US and its naval allies – comprising India, the Philippines, and Japan – conducted naval drills in the contested South China Sea, according to a statement issued by the US Navy on 9 May.  

Why it matters: Several countries have competing claims to territories in the South China Sea, including China, Vietnam, the Philippines, Taiwan, Indonesia, and Brunei. The drills, as well as similar incidents in recent months, have incensed Beijing, which lays claim to vast swaths of the oil- and gas rich area. Although violent confrontation with China has to date not been an element of the territorial dispute, China’s continuing militarisation in the region means that it cannot be ruled out in the medium- to long term. A2 Global advises shipping companies using the South China Sea, and their insurers, to factor in the heightened threat posed by mounting tensions between US-allied and Chinese maritime forces.

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