Beijing’s anger at ‘extremely malicious’ US move to ramp up pressure on Chinese tech firms

The Trump Administration has escalated its restrictions on Chinese technology companies, extending its grip to cover subsidiaries of firms already facing sanctions. This action has provoked a strong backlash from Beijing amid ongoing tensions in the global technology arena. The recent US measures aim to prevent sanctioned entities like Huawei, YMTC, and DJI from circumventing export controls by channeling restricted technologies through their subsidiaries. The US Department of Commerce stated that this new rule effectively addresses a critical loophole, ensuring that any subsidiary that is at least 50% owned by a sanctioned firm will face the same restrictions as its parent company. This change could potentially impact thousands of companies. In response, a spokesperson for China’s Ministry of Commerce labeled the US action as “extremely malicious,” vowing that China would take necessary steps to safeguard the rights and interests of its businesses. Beijing has called on Washington to rectify its actions and cease what it describes as unreasonable suppression of Chinese firms. These restrictions represent a renewed effort by the US to tighten controls on over a thousand Chinese companies deemed threats to national security or foreign policy objectives. Entities on the list must secure licenses to export specific products or technologies, impacting critical sectors such as artificial intelligence, semiconductors, and advanced robotics. The new regulations will also include entities listed as “Military End-Users,” aimed at preventing the diversion of dual-use items for military applications. This development adds another layer of uncertainty to the already fraught US-China trade relations, especially with an upcoming meeting between President Donald Trump and Chinese President Xi Jinping at the APEC summit in South Korea. While the rule does not explicitly target China, Chinese and Russian companies dominate the ‘entity list’ due to their contributions to military technology advancements. China’s rapid developments in chip and AI technologies have particularly alarmed US officials, leading to Huawei being blacklisted in 2019, followed by numerous others. Jeffrey I. Kessler, Under Secretary of Commerce for Industry and Security, emphasized that loopholes have long allowed exports that threaten American national security. Experts and policy advisors have warned of the potential for restricted companies to exploit their subsidiaries to bypass these limitations. A report from the US House Foreign Affairs Committee in 2023 criticized the entity list as “ineffective” and advocated for a new strategy, similar to the recent announcement. A notable example highlighted in the report is Huawei’s sale of its smartphone brand Honor to a consortium, including the Chinese government, in 2020 after facing sanctions. Honor has remained unblacklisted, showcasing a tactic that allows companies to restructure in ways that could evade US restrictions. The agency responsible for export controls at the Commerce Department expressed concern that previous methods might allow for diversionary practices, prompting the immediate implementation of these expanded controls on subsidiaries, although some companies have been granted a 60-day exemption.