The China Question

www.worldecr.com 11 ThE ChInAquESTIOn CHINA that his company will avoid using equipment from Chinese vendors when developing Europe’s 5G networks, but sees no issue in working with Huawei in Africa, where the Chinese company dominates as a supplier of equipment to many telecoms operators. Still, a World Bank-led project declined to award a contract to lay sensitive undersea communications cables aer Pacific island governments heeded US warnings that participation of a Huawei- linked company posed a security threat, two sources told Reuters on 18 June. e former Huawei Marine Networks, now called HMN Technologies, was part of that project. e news agency quoted two sources with direct knowledge of the tender saying that the project reached a stalemate due to security concerns raised within the island nations over HMN Technologies’ bid. e project’s planned connection to a sensitive cable leading to Guam, a US territory with substantial military assets, heightened those security concerns. ‘Given there was no tangible way to remove Huawei as one of the bidders, all three bids were deemed non-compliant,’ one of those sources was reported to have said. President Trump’s 2019 EO targeting Huawei started a chain reaction that has contributed to the current global shortage of semiconductor chips. In Korea, electronics giant Samsung said in May that the chip shortage was affecting television and appliance production and in the United States Ford and General Motors have made massive earnings cuts this year as a result of the chip crisis. Roy Liu, a partner at law firm Hughes Hubbard & Reed in Washington, DC observes that Chinese companies have reacted in two ways to US export controls that have been increasingly targeting China and to the uncertainty surrounding future restrictions. ‘On the one hand, in the short term some of the companies are stockpiling US- origin products or equipment or soware or parts and components because of this uncertainty, and that in part has contributed to this current well-known shortage of semiconductor products,’ Liu says. ‘On the other hand, over the medium and long term, I have observed many Chinese companies that have devised really very thought-out plans about substituting US-origin items with either made-in-China items or items made in other countries,’ he adds. Liu also notes that US and non-US companies face added uncertainties because it is still not very clear how exactly the Biden administration will go about enforcing China-related regulations and restrictions. ‘e enforcement actions by the US government have not really kept up with the frantic speed with which those new rules came out,’ Liu observes. ‘I think for companies, it’s really important to carefully analyse and watch for future development and also to carefully analyse the rules that have come up.’ He advises: ‘Whatever approaches companies decide to take with respect to their Chinese partners, they should carefully document their rationale and make sure they have the supporting documents, should the US government make any inquiries in the future.’ Ryan Fayhee, Liu’s fellow partner at Hughes Hubbard, adds that the expanded regulations mean companies have to devote more time and resources to understanding the end use of their products: ‘You’re essentially running a diligence exercise on a periodic basis and it puts the need for on- the-ground diligence at a real premium,’ he says. ‘We’ve seen vendors willing to do this work, but it increases the cost and the time ‘whatever approaches companies decide to take with respect to their Chinese partners, they should carefully document their rationale.’ Roy liu, Hughes Hubbard & Reed Hong Kong story In July 2020, days before President Trump signed an order formally ending preferential treatment of Hong Kong by the United States, news reports there predicted an expected stampede of US tech companies out of the territory. ‘The fallout could be as much as a 30 per cent cut in rents, given that American companies are now the single largest occupier of prime office space in the city,’ the English-language South China Morning Post commented at the time. On 14 July 2020, with Trump’s signature, Hong Kong’s status changed dramatically from a destination to which companies could export a broad range of products, either without a licence or under licence exceptions, to being treated the same as China for all export purposes. Hong Kong became subject to the same Military End-User rule, the later Military Intelligence End-User Rule and also, by default, the highly restrictive export regulations for China, requiring a licence for a very wide range of technologies. ‘No special privileges, no special economic treatment and no export of sensitive technologies,’ Trump said when he signed the order, two months after his secretary of state Mike Pompeo declared Hong Kong ‘no longer autonomous’ from China. The most serious impact from that move was felt by the high-end electronics industry and aerospace companies, which historically had subsidiaries in Hong Kong and had exported to the enclave. On 3 June, US aerospace giant Boeing’s Chief Executive Dave Calhoun referred to the troubled US-China trade relationship, saying he could not predict when a ‘thaw out’ would open up jet deliveries in one of the world’s fastest growing aviation markets.