Hands tied, the world watches the rupture between the greatest powers

Kishore Mahbubani talks about the impact of the US blacklisting of Chinese companies. “If the US tries to disengage from Chinese companies and their global reach, the US will not only be disengaging from China, but also from the rest of the world

The latest U.S. move to expand its list of Chinese military companies risks causing more than just a drop in the shares of some of its most valuable companies: it also threatens to accelerate the decoupling of the world’s two largest economies.

On Monday, the Biden administration added Tencent Holdings Ltd., the world’s largest game publisher, and Contemporary Amperex Technology Co. Ltd. (CATL), a key battery supplier to Tesla Inc., to its list of “Chinese military companies” — firms that the US says work directly or indirectly with the People’s Liberation Army (PLA) or contribute significantly to China’s industrial base.

Since the first list was released in 2021, as required by a law passed in the final days of Donald Trump’s first term, it has grown to include 134 companies — including four of China’s 20 largest by market value, together valued at nearly U.S. $1 trillion.

Although the list does not impose specific sanctions, unlike the Commerce Department’s Entity List, it discourages American companies from doing business with its members and represents a reputational blow to the companies involved. More broadly, the rapid expansion of the registry shows how much the lines between military and civilian enterprises are being blurred, as well as increasing the risk of bifurcation of supply chains if stricter measures are applied in the future.

That approach could backfire on Washington, according to Kishore Mahbubani, Singapore’s former ambassador to the United Nations, who called the latest addition “reckless.”

“The entire world will move to depend on Chinese companies for a wide range of products, including companies like Tencent and CATL,” said Mahbubani, also the author of the book Has China Won?

“If the US tries to decouple from Chinese companies and their global reach, the US will not just be decoupling from China,” he said. “They will be decoupling from the rest of the world as well.”

The U.S. blacklisted Tencent Holdings Ltd. and Contemporary Amperex Technology Co. Ltd. (CATL) for alleged ties to the Chinese military in a surprise move weeks before Donald Trump took office. Bloomberg’s James Mayger reports.

Although the list was expanded at the end of Joe Biden’s term, one of the main proponents of including CATL and other large Chinese companies was Marco Rubio, nominated to be Secretary of State in Trump’s second term.

This raises the question of whether Trump will take a tough stance on China, as indicated by his threats to impose tariffs of up to 60%, or whether he will take a more pragmatic view — suggested by his efforts to reverse the TikTok ban and his close ties with Tesla founder Elon Musk.

“We will have to see whether this strategy is significantly revised by the incoming Trump administration,” said Josef Gregory Mahoney, professor of international relations at East China Normal University in Shanghai. “Conventional wisdom indicates it won’t be, but there are compelling reasons to change course.”

The US has described the list as a way to highlight and counter what it calls China’s “military-civil fusion strategy” — which supports the PLA’s modernization goals by ensuring access to advanced technologies and expertise developed by companies, universities and programs. research Chinese people who appear to be civil entities.

This broad strategy, known in China as “integrated national strategies and capabilities,” has been increasingly promoted under President Xi Jinping and frequently highlighted in state media.

On Monday, the Pentagon also added SenseTime Group Inc. and Changxin Memory Technologies Inc., highlighting a Chinese memory chip maker considered crucial to Beijing’s semiconductor and AI development efforts.

The agency also named oil giant Cnooc Ltd. and Cosco Shipping Holdings Co., both previously targeted by Washington.

The focus has shifted from “traditional” military contractors to include companies that develop technological products with potential military applications, according to Dylan Loh, assistant professor of politics at Nanyang Technological University in Singapore.

This demonstrates “the broadening of the scope of national security,” Loh said. “It’s not just a US thing, but, arguably, a global phenomenon, where countries are increasingly securitizing products and technologies in the name of national security.”

The measure comes amid growing technological rivalry between the two countries. The US has imposed export controls to restrict China’s ability to develop an advanced semiconductor industry and use artificial intelligence for military purposes. In response, Beijing has tightened its own export controls, including a ban last month on several high-tech and military-use materials to the United States.

Over the past two years, the Biden administration has used the “small yard, high fence” metaphor to explain its actions to limit China’s access to technology. The idea is that sensitive technologies should be kept within a small backyard, protected by a high fence from trade and investment controls. This would only apply to advanced technologies with military applications, while trade and broader commercial investment with China would remain unchanged.

However, the latest move targets Tencent and CATL, which, in theory, do not appear to have regular dealings with the People’s Liberation Army (PLA). Tencent, China’s most valuable company, is seen as a pioneer in the country’s private and internet sector, creating a so-called app for everything that Elon Musk touted as the model for X.

During the first Trump administration, the US government attempted to ban WeChat — a Tencent messaging service that has evolved into a payments, social networking and online services platform — citing national security concerns.

CATL is not only a key supplier to Tesla, but also to many of the world’s largest automakers, including Stellantis NV and Volkswagen AG. In August, Marco Rubio asked the Pentagon to target the Chinese battery maker because of its potential to become a crucial supplier to the PLA.

About one in three electric cars is powered by CATL batteries, and its widespread presence in the automotive supply chain could cause major disruptions to the global auto industry if automakers are forced to find alternatives.

Beijing has repeatedly criticized what it sees as US “oversecuritization.” “Small yard, high fence should not become big yard, iron curtains,” Foreign Minister Wang Yi told US Secretary of State Antony Blinken in September.

On Tuesday, China’s Foreign Ministry again condemned US sanctions and promised to defend the rights of Chinese companies. “We urge the US to immediately correct its wrong actions and end illegal unilateral sanctions and extraterritorial jurisdiction over Chinese companies,” Guo Jiakun, a ministry spokesman, said at a regular press briefing in Beijing.

China has made clear it is prepared to challenge the US in future trade disputes. In addition to its export ban on critical minerals such as germanium and gallium, Beijing last week announced plans for tighter controls on the shipment of technologies used in battery materials. It is also placing more US companies on its Untrustworthy Entities List, taking a similar approach to the US.

“Given Beijing’s propensity to respond to U.S. actions with reciprocal measures, it would not be surprising if Beijing placed a non-defense company on one of these lists as symbolic retaliation,” said Kendra Schaefer, partner at consultancy Trivium China.

With information from Bloomberg*