Thayer Consultancy Background Brief:

ABN # 65 648 097 123

Carlyle A. Thayer
U.S. Sanctions Chinese
Companies under Export
Administration Regulations
September 6, 2020
The U.S. government recently added twenty-four Chinese companies and associated
individuals to a government sanction list for their role in the South China Sea. We
request your assessment of the following:
A1. The impact on the Chinese companies
When a Chinese (or other foreign) company is placed on the Entity List by the U.S.
Department of Commerce’s Bureau of Industry and Security, American companies are
prohibited from transferring a range of goods and intellectual property to the listed
Chinese entity unless they have a special license to do so.
According to a State Department official, U.S. restrictions “applies not only to
equipment and commodities, but also software and technology, and any applications
for export, re-export or transfer to targeted CCCC (China Communications
Construction Company) units will face a ‘presumption of denial’.”
Further, investors, potential partners, and foreign governments with close relations
with the United States will be dissuaded from dealing with the listed Chinese entity
for fear of damage to their reputations.
In addition to the twenty-four Chinese entities, the Department of Commerce also
identified and designated another thirty-six entities in France, Hong Kong, Indonesia,
Malaysia, Oman, Pakistan, Russia, Switzerland and the United Arab Emirates for a
range of activities including “representing an unacceptable risk that U.S.-origin items
exported, reexported, or transferred (in-country) to certain listed entities will be used
in military end-use activities in China and/or in support of programs for the People’s
Liberation Army” or are “contrary to the national security or foreign policy interests
of the United States.”
Also, the U.S. Department of State has imposed visa restrictions on Chinese
“individuals responsible for, or complicit in, either the large-scale reclamation,
construction, or militarization of disputed outposts in the South China Sea, or the
PRC’s [People’s Republic of China] use of coercion against Southeast Asian claimants
to inhibit their access to offshore resources.” The visa restrictions also could be
applied to the immediate family members of Chinese executives and officials involved
in the construction of artificial islands or intimidation of Southeast Asian claimant
states.
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A2. The impact on China

On 26 August, twenty-four Chinese entities (see below) were listed by the Department
of Commerce, including five subsidiaries of the China Communications Construction
Company. The CCCC is a leading contractor for major infrastructure projects (bridges,
ports, high speed rail) under China’s Belt and Road Initiative.
According to a U.S. State Department official who briefed the media, sales by
American companies to the twenty-four Chinese entities “amounted to about US$5
million in the past five years.”
The State Department official also noted that “dozens of individuals have already been
deemed ineligible for visas under the new measure.”
In other words, the new restrictions will have minimal impact on the listed Chinese
entities. There could be collateral damage to foreign companies either owned by
Chinese state-owned enterprises or who are under contract with Chinese enterprises.
For example, Australia’s John Holland, a major construction company, was acquired
by CCCC in 2015. John Holland’s ability to win multibillion-dollar infrastructure
contacts with state governments in Australia could be undermined
In assessing the impact on China, some analysts suggest this could be the first step in
a series of punitive U.S. actions. These analysts give Huawei as an example. For
example, in July the Department of Commerce added another thirty-eight Huawei
affiliates in twenty-one countries to the Entity List. This means American and foreign
companies are prevented from exporting U.S. technology to these entities without a
license.
A3. The potential response by China
Zhao Lijian, a Chinese Foreign Ministry spokesperson, responded to the above
developments on 27 August at a Regular Press Conference as follows:
Xinhua News Agency: The US State Department and Commerce Department imposed
sanctions on Chinese companies and citizens "responsible for or complicit in
militarization of and illegal activities in the South China Sea". What is your response?
Zhao Lijian: China's construction activities on its own territory are entirely within its
sovereignty and have nothing to do with militarization. The participation of Chinese
companies and individuals in domestic construction activities is legitimate, lawful and
beyond reproach.
It is unjustified for the US to impose sanctions on Chinese companies and individuals
for their involvement in relevant construction activities in their own country. The
move by the US side grossly interferes in China's internal affairs and violates
international law and basic norms governing international relations. It is hegemonistic
logic and power politics that are at play here. China is firmly opposed to this. We urge
the US to correct its mistake and immediately stop meddling in China's internal affairs.
China will take firm measures to safeguard Chinese businesses and citizens'
lawful interests [emphasis added].
China can be expected to respond with a ‘tit-for-tat’ measure that is proportional to
the damage caused to China’s state-owned enterprises. Placing twenty-four Chinese
enterprises on the Entity List is but one of a series of U.S. punitive actions against China
this year that reflect a deterioration in bilateral relations. China likely will play a
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waiting game until the results of the U.S. presidential election on 3rd November are
known.

List of 24 Chinese State-Owned Enterprises Placed on Entity List

• China Communications Construction Company Dredging Group Co., Ltd.

• China Communications Construction Company Tianjin Waterway Bureau
• China Communications Construction Company Shanghai Waterway Bureau
• China Communications Construction Company Guangzhou Waterway
Bureau
• China Communications Construction Company Second Navigation
Engineering Bureau
• Beijing Huanjia Telecommunication Co., Ltd.
• Changzhou Guoguang Data Communications Co., Ltd.
• China Electronics Technology Group Corporation, 7th Research Institute
(CETC-7)
• Guangzhou Hongyu Technology Co., Ltd., (a subordinate institute of CETC-
7)
• Guangzhou Tongguang Communication Technology Co., Ltd. (a
subordinate institute of
CETC-7)
• China Electronics Technology Group Corporation, 30th Research Institute
(CETC-30)
• China Shipbuilding Group, 722nd Research Institute
• Chongxin Bada Technology Development Co., Ltd.
• Guangzhou Guangyou Communications Equipment Co., Ltd.
• Guangzhou Haige Communication Group Co., Ltd.
• Guilin Changhai Development Co., Ltd.
• Hubei Guangxing Communications Technology Co., Ltd.
• Shaanxi Changling Electronic Technology Co., Ltd.
• Shanghai Cable Offshore Engineering Co., Ltd.
• Telixin Electronics Technology Co., Ltd.
• Tianjin Broadcasting Equipment Co., Ltd.
• Tianjin 764 Avionics Technology Co., Ltd.
• Tianjin 764 Communication and Navigation Technology Co., Ltd.
• Wuhan Mailite Communication Co., Ltd.
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Suggested citation: Carlyle A. Thayer, “U.S. Sanctions Chinese Companies under Export
Administration Regulations,” Thayer Consultancy Background Brief, September 6,
2020. All background briefs are posted on Scribd.com (search for Thayer). To remove
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.