Tech war: China silent over Pentagon blacklist as tech firms brace for rising tensions

  • None of the 13 Chinese firms newly blacklisted by the US defence department, including DJI, has spoken out, while state media has remained largely silent
  • Analysts say the lack of response shows that Washington’s move did not catch Beijing or Chinese companies by surprise

The US defence department’s latest move to add 13 Chinese technology companies to a blacklist of entities deemed to be tied to Beijing’s military has been met with silence from China, as the Chinese government and business sector have already been bracing for escalating sanctions, analysts said.

The blacklisted companies – which include Shenzhen-based DJI Technology, the world’s largest maker of consumer drones; BGI Genomics, China’s largest genomics firm; and infrastructure giant China State Construction Group – are believed by the Pentagon to be connected to the People’s Liberation Army.

Wednesday’s move paves the way for the US commerce department to impose trade restrictions against those companies, including investment bans.

The implications of such a move could be huge, but none of the named Chinese firms has made any official statement as of Friday. Reactions from state media remain largely muted as well.

While part of the reason could be that China was in the middle of a week-long National Day holiday, which ended on Friday, analysts said the lack of response shows that the US move did not catch the Chinese by surprise.

Chinese companies have “already been mentally prepared” for US sanctions and have started to cut reliance on US technologies and products, according to Lu Chuanying, director at the Research Centre of Global Cyberspace Governance of the Shanghai Institutes for International Studies.

“The only thing [sanctions] does is to prompt more companies to completely give up cooperating with the US, and to build a new ecosystem that does not involve the US,” he said.

It should be noted that inclusion on the Pentagon’s blacklist “does not equate to a sanction or penalty”, according to Paul Haswell, partner and technology lawyer at Hong Kong-based law firm Seyfarth Shaw.

“Being added to the list has no immediate impact on Chinese tech companies – further action would have to be taken to cause a headache to a company added to the list,” he said. “Unfortunately this is all just a reflection of the current geopolitical landscape.”

The 13 companies named this week form the second batch of Chinese businesses identified by Washington as having alleged military involvement. The Pentagon’s initial list of 47 entities included Chinese telecommunications equipment giant Huawei Technologies Co, which is already on the commerce department’s so-called Entity List.

The defence department’s list is required by last year’s National Defence Authorisation Act, which guides funding for the US military. China’s top chip maker Semiconductor Manufacturing International Corp and surveillance equipment maker Hikvision Digital Technologies were also on the original list published last June.

The US is targeting China’s strategic industries involving cutting-edge technologies, said An Guangyong, an expert at China’s Mergers & Acquisitions Association.

The latest list “further strengthens” US President Joe Biden’s executive order last year that bars American investment into blacklisted Chinese businesses, said Chen Jia, a research fellow with the International Monetary Institute at Renmin University of China. It will, for example, become more difficult for DJI to get away with US restrictions.

“This decoupling farce is expected to continue for some time, so Chinese companies must learn to survive and develop in a dangerous environment,” said Chen.

Worsening US-China relations could possibly lead to blacklisted companies getting similar treatment as Huawei, according to Dov Levin, assistant professor of international relations at the University of Hong Kong.

“For example, access to key parts made by US firms and parts manufactured by non-US firms using or applying US patented technologies could be denied,” he said.

Several companies on the list are not new to US sanctions.

Washington has barred federal agencies from purchasing surveillance cameras from Hikvision and Zhejiang Dahua Technology since as early as 2019, while the commerce department banned American companies from exporting products to DJI in 2020.

CloudWalk Technology, a Shenzhen-based company focusing on facial recognition technology, as well as 360 Security Technology, the Beijing-based cybersecurity company better known as Qihoo 360, have been on the Entity List since May 2020.

BGI was added to the Entity List in July 2020.

Authors: Ann Cao, Xinmei Shen, Tracy Qu, SCMP

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