China slams U.S. blacklisting of Huawei as trade tensions rise

[May 16, 2019]  By Yawen Chen and Se Young Lee

BEIJING (Reuters) - China on Thursday slammed a decision by the U.S. government to put telecom equipment giant Huawei on a blacklist and said it will take steps to protect its companies, in a further test of ties as the economic heavyweights clash over trade.

China is strongly against other countries imposing unilateral sanctions on Chinese entities, a Commerce Ministry spokesman said, stressing that the United States should avoid further damaging Sino-U.S. trade relations.

The crackdown on Huawei came as U.S. Treasury Secretary Steven Mnuchin said he would visit China soon for more trade talks. Hopes for a deal to end their trade war have been thrown into doubt after the world's two biggest economies raised tariffs on each other's goods in the past week.

The U.S. Commerce Department said on Wednesday it was adding Huawei Technologies Co and 70 affiliates to its so-called "Entity List" in a move that bans the Chinese company from acquiring components and technology from U.S. firms without prior U.S. government approval.

President Donald Trump separately on Wednesday signed an executive order barring U.S. firms from using telecom equipment made by companies deemed to pose a national security risk.

The order did not specifically identify any country or company, but U.S. officials have previously labeled Huawei a "threat" and lobbied allies not to use Huawei network equipment in next-generation 5G networks.

"China has emphasized many times that the concept of national security should not be abused, and that it should not be used as a tool for trade protectionism," Gao Feng, spokesman at the Chinese commerce ministry, told reporters.

"China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms."

U.S. Commerce Secretary Wilbur Ross said Trump backed the decision to "prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests."

In response, Huawei, which denies its products pose a security threat, said it was "ready and willing to engage with the U.S. government and come up with effective measures to ensure product security."

It said restricting Huawei from doing business in the United States would "limit the U.S. to inferior yet more expensive alternatives, leaving the U.S. lagging behind in 5G deployment and eventually harming the interests of U.S. companies and consumers."

Putting constraints on Huawei's supply chain could also delay its procurement of components and parts needed to help Chinese telecom operators roll out 5G in China, Jefferies wrote in a note, unless Beijing manages to negotiate with Washington to help Huawei get out of "jail".

"Assuming the U.S. export ban on Huawei remains unresolved for the next 12-24 months, we highly doubt if China would stick to its timetable of building 5G aggressively," the U.S. brokerage wrote.

The sanctions on Huawei were also likely to have ramifications beyond the company itself, rattling the global tech supply chain, analysts said.

China is also angry about Canada's arrest of Huawei Chief Financial Officer Meng Wanzhou in December. Meng faces extradition to the United States on charges that she conspired to defraud global banks about Huawei's relationship with a company operating in Iran.

She and the company deny the charges.

Also on Thursday, China's Foreign Ministry announced the formal arrest of two Canadian citizens who have been detained shortly after Meng's arrest.

Huawei smartphones are seen displayed inside a shopping mall in Shanghai, China May 16, 2019. REUTERS/Aly Song

While Canada says China has made no specific link between the detentions of the two men and Meng's arrest, experts and former diplomats say they have no doubt it is using their cases to pressure Canada.

UNCERTAIN OUTLOOK

Trump had softened his trade rhetoric on Tuesday and insisted talks had not collapsed. He also announced plans to meet Chinese President Xi Jinping at a G20 summit in Japan late next month.

When asked about media reports that the two leaders had to meet face to face to resolve the trade dispute, Gao said those reports were not true.

He added that he had no information on any plans for a U.S. trade delegation to visit China.

Foreign ministry spokesman Lu Kang, asked if China had invited U.S. officials for more talks, said China always advocated resolving disputes through dialogue.

"Negotiations and consultations, to have meaning, must be sincere," Lu told reporters at a separate daily briefing.

"First, there must be mutual respect, equality and mutual benefit. Second, one's word must be kept, and not be capricious."

TARIFF ESCALATION

As negotiations toward resolving the U.S.-China trade war stalled last week, the United States ramped up the pressure by raising tariffs on a list of $200 billion worth of Chinese imports to 25% from 10%.

China retaliated with higher tariffs on a revised list of $60 billion worth of U.S. products.

Trump has threatened to launch 25% tariffs on another $300 billion worth of Chinese goods.

"The tariff hike by the United States will only bring greater difficulties to the consultations," Gao said.

"We urge the United States to cancel the wrong practices as early as possible, avoiding greater losses to Chinese and American companies and consumers, and causing a 'recession-like' impact on the world economy."

Three differences remain between the two countries, according to China.

China believes tariffs were the genesis of the trade dispute, and that all tariffs must be eliminated in order to reach a deal.

The second issue centers on the additional volume of U.S. goods that China will agree to buy, Vice Premier Liu He, China's lead trade negotiator, said last week without giving details.

The third is over how balanced the text of the draft agreement of the trade deal should be, he said.

"To reach any agreement, China's three core concerns must be properly resolved," Gao said.

(Reporting by Yawen Chen and Se Young Lee; Additional reporting by Michael Martina; Writing by Ryan Woo; Editing by Simon Cameron-Moore & Kim Coghill)

[© 2019 Thomson Reuters. All rights reserved.]

Copyright 2019 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.