US to target 89 Chinese firms with military ties: Report

Trump administration plans to restrict some Chinese aerospace and other firms from buying US technology, Reuters reports.

China fighter jet
The Aviation Industry Corporation of China, maker of the J-31 stealth fighter, is one of the companies reportedly in the firing line for new US technology export restrictions [File: Jason Lee/Reuters]

The Trump administration is close to declaring that 89 Chinese aerospace and other companies have military ties, restricting them from buying a range of goods and technology made in the United States, according to a draft copy of the list seen by Reuters.

The list, if published, could further escalate trade tensions with Beijing and hurt US companies that sell civil aviation parts and components to China, among other industries.

A spokesman for the US Department of Commerce, which produced the list, declined to comment. The Chinese foreign ministry did not immediately respond to a request by Reuters for comment.

Commercial Aircraft Corp of China Ltd (COMAC), which is spearheading Chinese efforts to compete with Boeing and Airbus, is on the list, as is Aviation Industry Corporation of China (AVIC) and 10 of its related entities.

The list is included in a draft rule that identifies Chinese and Russian companies the US considers “military end users,” a designation that means US suppliers must seek licenses to sell a broad swath of commercially available items to them.

According to the rule, applications for such licenses are more likely to be denied than granted.

Mounting pressure

US President Donald Trump has stepped up his actions against China in recent months. Ten days ago, he unveiled an executive order prohibiting US investments in Chinese companies that Washington says are owned or controlled by the Chinese military.

The pending list comes after the Department of Commerce expanded the definition of “military end-user” in April.

The April rule includes not only armed service and national police but any person or entity that supports or contributes to the maintenance or production of military items – even if their business is primarily non-military.

The export restriction applies to items as disparate as computer software like word processing, scientific equipment like digital oscilloscopes, and aircraft parts and components.

In terms of aircraft, the items include everything from brackets for flight control boxes to the engines themselves.

The Comac C919, China’s first large passenger jet, is made by the Commercial Aircraft Corp of China, another firm reportedly on the list of firms to be hit with US trade restrictions [File: Greg Baker/Pool via Reuters]

News of the list comes at a sensitive time for the US aerospace industry as Boeing seeks Chinese approval for its 737 MAX after it was cleared by US regulators last week. In March 2019, China was the first nation to ground the jet after two fatal crashes. A spokesman for Boeing declined to comment.

Washington trade lawyer Kevin Wolf, a former Department of Commerce official, said the department had shared the draft rule with a technical advisory committee of industry representatives, and it should have been kept confidential.

Wolf said the rule and list still could be modified and that the clock was running out for it to go into effect under the Trump administration since it would need to be cleared and sent to the Federal Register, the official US publication for rules, by mid-December.

Protecting national security

In the draft rule seen by Reuters, the Department of Commerce said being able to control the flow of US technology to the listed companies was “vital for protecting US national security interests”.

But a former US official, who did not want to be identified, said: “Merely creating a list and populating it is a provocative act.” An aerospace industry source said it could spur China to retaliate.

The inclusion of COMAC would come as a surprise to at least one major US supplier, which had determined the company was not a military end-user, the industry source said.

A list also would provide European competitors with an opening to promote their manufacturers, by pointing out they do not have to clear such hurdles, even if the US grants the licenses, the industry source said.

General Electric Co (GE) and Honeywell International, both supply COMAC and have joint ventures with AVIC.

A GE spokesperson told Reuters its global joint ventures operate in compliance with all laws, and that the company has worked to obtain licenses related to military end-users.

A Honeywell spokeswoman declined to comment.

Besides the 89 Chinese firms, the draft rule also designates 28 Russian entities, including Irkut, which is also aiming to break into Boeing’s market with its MC-21 jetliner.

The 117-company list is “not exhaustive,” the draft rule said, and is considered an “initial tranche”.

Source: Reuters