The weakening of tensions between America and China puts companies in a crosshairs

Photographer: Shawn Thew / EPA / Bloomberg

The last days of the Trump administration are as baffling for companies and investors as ever in the midst of an increasingly controversial US-China relationship.

After a week of widespread Confused over the extent of a U.S. ban on investment in China – related enterprises, Washington and Beijing took steps over the weekend to further tighten tensions and cloud the prospects for cross-border trade.

Secretary of State Michael Pompeo on Saturday stood up for decades of U.S. policy by lifting self-imposed restrictions on the way government officials deal with Taiwan and prompt calls for retaliation by China’s state-run media. Pompeo’s announcement comes just hours before Beijing issued new rules allowing Chinese courts to punish global companies for complying with foreign sanctions – a move that could theoretically force businesses to choose between the two largest economies in the world.

In both cases, it was far from clear how the edict would be applied. For example, China has for years expanded its toolkit to fight back against US sanctions, although so far it has refrained from using measures including blacklists and export controls.

Hanging over everything is the question of how the most important geopolitical relationship in the world will develop after Joe Biden entered the White House later this month. Any optimism for easing tensions must be tempered by dual US support for recent policies levied against China, former US Ambassador to China Terry Branstad told Bloomberg Television on Tuesday. “I do not see the likelihood of a major change in policy with the change of administrations,” he said.

Farewell shots

The Trump administration has approved more than 200 Chinese entities, municipal governments and universities since 2019

Source: US Department of Commerce as of December 21, 2020.

The result is continued uncertainty for companies caught in the crossfire. Apple Inc. on Tencent Holdings Ltd. And HSBC Holdings Plc. This could leave the risk of starting investment decisions, transactions and funding, at a time when the global economy plunged by coronavirus needs all the support it needs.

“There’s an increase in tit-for-tat,” said Alex Capri, a research fellow at the Hinrich Foundation, a foundation in Asia founded by American entrepreneur Merle Hinrich to promote sustainable world trade. “From a corporate governance perspective, multinational companies and individuals will be increasingly whipped.”

In a speech to Communist Party officials on Monday on China’s development plans, President Xi Jinping said that everyone “must be brave to fight and be good at it,” while showing an optimistic tone that “opportunities outweigh as challenges. “

Chinese stocks outperformed local counterparts on Monday, although they recovered early trading on Tuesday.

Investors in Taiwan have largely eased rising tensions in the cross-country and sent the local stock index to a record high. Pompeo lifted US guidelines on meetings with Taiwanese officials, instituted after Washington’s recognition in China in 1979. They required written permission from the State Department for diplomats and military personnel above a certain rank to visit Taiwan, and the places where meetings with Representatives of Taiwan can take place.

The Chinese Times, backed by Global Times, has warned that Pompeo is pushing the world’s largest economies into military conflict. Hu Xijin, the paper’s editor-in-chief, added in a microblog post that China had a “precious opportunity for mainland China to give the forces of ‘Taiwan independence’ a heavy lesson and ‘strategic leverage’. to establish the Strait of Taiwan.

The Chinese Foreign Ministry, which opposes official US-Taiwan interaction, said Monday that it “strongly opposes and condemns” the US move and reiterates that Taiwan is an “inalienable” part of its territory.

Beijing’s new rules on foreign sanctions, unveiled by the Ministry of Commerce on Saturday, are intended to protect local businesses from ‘unfair’ overseas enforcement actions by allowing Chinese citizens or companies to sue Chinese courts if they interests through the application of foreign laws.

ByteDance Ltd., for example, has been put under pressure by the Trump administration to relinquish control of its striking TikTok short video app due to alleged concerns about national security, but startup investors could try the new rules of China to obtain financial compensation for any losses.

Other potential scenarios raised by the new rules: if Apple removes Tencent’s WeChat or TikTok from its app store, could they be sued in mainland China for damages? Or if TSMC complies with the sanctions against Huawei Technologies Co by refusing its chips, can the Chinese company also claim financial compensation?

TikTok, Hong Kong and more US-China Flash Points: QuickTake

Beijing’s announcement at the end of Trump’s presidency was probably at the right time to send a signal to US policymakers without too much opposition to a new Biden government in its early days, said Sean Ding, a partner and analyst from Washington in Plenum, a research firm specializing in Chinese politics and economics.

“The new rules are more than anything a signaling mechanism for both Chinese companies and U.S. companies in China: we now have a legal capacity to counter the long-standing jurisdiction of U.S. law,” Ding said. “In short, at this stage it is a signal rather than a legal effort.”

This approach would be consistent with previous Chinese responses to U.S. restrictions, including the creation of an “unreliable list of entities” in Beijing. Although the government has promised to punish businesses, organizations or individuals on the list who harm national security, the authorities have yet to say whether anyone has met the criteria for inclusion.

The National Security Act introduced by the Communist Party in Hong Kong in June also highlights how the US can have the upper hand when it comes to sanctions, especially those affecting the financial industry.

Although the security legislation in Hong Kong prohibits sanctions against the financial center and China, state credit providers, including Bank of China Ltd., have quietly taken steps to comply with US sanctions against officials such as Carrie Lam, Hong Kong’s chief executive. With more than $ 1 trillion in US dollar debt, China’s four largest state-owned banks have great incentives to stay on the good side of US regulators so they can maintain access to dollar financing.

Read more: China Banks legislation complies with Trump sanctions on Hong Kong

Angela Zhang, director of the Center for Chinese Law at the University of Hong Kong and author of ‘Chinese Antitrust Exceptionalism: How the Rise of’, said Angela Zhang, a similar dynamic, has conflicting rules in the US and the European Union over Iran followed up. China is challenging global regulation. ”

“If you look at the EU precedent, I see that the Chinese rules are not very effective in countering the US sanctions,” Zhang said. However, it will increase compliance costs for businesses, she said.

The long reach of US sanctions – and the potential for confusion over its implementation – was on display again on Monday when banks and money executives rushed to comply with Trump’s executive order banning investments in Chinese military companies.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. said in exchange reports over the weekend that they removes 500 structured products in Hong Kong, which will have an impact on investors in the US and around the world.