China to target US tech firms as revenge

Govt source reveals scrutiny plan in response to Huawei trade ban

China is ready to take a series of countermeasures against a US plan to block shipments of semiconductors to Chinese telecom firm Huawei, including putting US companies on an “unreliable entity list,” launching investigations and imposing restrictions on US companies such as Apple, and halting purchase of Boeing airplanes, a source close to the Chinese government told the Global Times.

The potential move, the second time within two days that China has released message of hitting back against the US, also the very first time government source noted to target specific US companies, is a result of Washington’s recent malicious attacks on China, which ignited a tsunami of anger among Chinese officials and in the business circle. China is mulling punitive countermeasures against US individuals and entities over COVID-19 lawsuits due to the abuse of litigation by the US side, sources close to the matter told the Global Times previously.

China’s latest moves indicate a toe-totoe strategy between the world’s two largest economies, from political to economic ends, being in full play, experts said.

The Trump administration on Friday moved to block shipments of semiconductors to Huawei from global chipmakers. The US Commerce Department said it was amending an export rule and the Entity List to “strategically target Huawei’s acquisition of semiconductors that are the direct

product of certain US software and technology,” according to a statement on its website.

“China will take forceful countermeasures to protect its own legitimate rights,” if the US moves forward with the plan to change its rules and bar essential suppliers of chips, including Taiwan-based TSMC, from selling chips to Huawei, the source told the Global Times in an exclusive interview.

The measures include adding related US companies to China’s “unreliable entity list,” imposing restrictions on or launching investigations into US companies like Qualcomm, Cisco and Apple according to Chinese laws like Cybersecurity Review Measures and Anti-monopoly Law, and suspending the purchases of Boeing airplanes, according to the source.

The US companies mentioned, such as Apple, Qualcomm, Cisco and Boeing, are all highly dependent on the Chinese market.

Retaliation in detail

“China should implement these countermeasures to the extent that the US dare not ask for a mile after being given an inch,” He Weiwen, a former senior trade official and an executive council member of the China Society for World Trade Organization Studies, told the Global Times. He advised China to carry out “thorough investigations into relevant US companies and “let them feel the pain.”

Punitive measures targeting large-sized US companies like Qualcomm, Cisco and Apple are the “nuke bomb,” according to analysts.

“China will launch rounds of endless investigations on those firms, just like swords hanging over their head. It will dampen investors’ confidence and squeeze their income in the Chinese market,” said an insider.

In the first quarter of 2020, China’s revenue made up 14.8 percent of Apple’s total revenue.

Analysts also noted that if chips made by those firms cannot be sold to the Chinese market, one of their most important sources of revenue, it would be extremely difficult for US tech companies to recoup investment. Some may be mired in a loss.

As for Boeing, China could possibly scrap all the current Boeing orders if the US steps on China’s bottom line, even if it means some Chinese firms have to pay for the liquidated damages, an aviation industry insider told the Global Times.

If Boeing lost orders from China, the firm, which is already on the verge of bankruptcy, could only resort to US government for help in the end, the insider said.

While the pain, according to experts close to the government, is expected to be felt not only by big names mentioned above such as Qualcomm, Cisco and Apple, but also by smaller US firms that are more vulnerable to uncertainties.

Most US companies included in the list may be small-sized US firms that are highly dependent on Chinese companies, such as US trading agencies, said Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing.

“They are vulnerable to restrictive measures. Once Chinese authorities impose sanctions on them, the cost is ill-afforded. Most small firms will be pushed to the brink of collapsing,” Gao said. He noted that such countermeasures could serve as a “first-level” warning to the US side.