US blacklist of China’s tech giants risks even faster decoupling

SINGAPORE – The latest move of the US to expand its list of “Chinese military companies” risks doing more than tanking the shares of some of China’s most valuable companies, it also threatens to accelerate decoupling of the world’s biggest economies.

The Biden administration on Jan 7 added Tencent Holdings, the world’s largest gaming publisher, and Contemporary Amperex Technology (CATL), a key battery supplier to Tesla, to its list of Chinese military companies. These are companies that it says are working directly or indirectly with the People’s Liberation Army (PLA), or contributing significantly to China’s industrial base.

Since the first list was put out in 2021, as mandated by a law passed in the waning days of Donald Trump’s first presidency, it has expanded to 134 companies – including four of China’s top 20 in terms of market capitalisation, which together are valued at almost $1 trillion (S$1.36 trillion).

While the list carries no specific sanctions, unlike the US Commerce Department’s Entity List, it still discourages US companies from dealing with its members and amounts to a reputational hit for the businesses involved.

More broadly, the rapid expansion of the register shows the extent to which lines are being blurred between military and civilian enterprises, and risks accelerating the bifurcation of supply chains if stronger measures are applied down the road.

It is an approach that risks backfiring on Washington, according to Mr Kishore Mahbubani, Singapore’s former ambassador to the United Nations, who called the latest addition “unwise”.

“The whole world will move towards relying on Chinese companies for a whole range of products, including companies like Tencent and CATL,” said Mr Mahbubani, who is also the author of Has China Won?.

“If the US tries to decouple from Chinese companies and their global reach, the US is not just decoupling from China,” Mr Mahbubani said, “it is decoupling from the rest of the world too.”

Although the list comes at the end of President Joe Biden’s term, one major proponent of tagging CATL and other major Chinese companies has been Mr Marco Rubio, who is nominated to become secretary of state in President-elect Trump’s second term. 

That raises the question of whether Trump will adopt a hardline stance towards China, as indicated by his threats to impose tariffs as high as 60 per cent, or take a more pragmatic view as suggested by his efforts to overturn a ban on TikTok and his close ties with Tesla founder Elon Musk.

“We’ll have to see whether this strategy is revised significantly by the incoming Trump administration,” said Dr Josef Gregory Mahoney, a professor of international relations at Shanghai’s East China Normal University. “Conventional wisdom indicates it won’t be, but there are some 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 modernisation goals of the PLA by ensuring it can acquire advanced technologies and expertise developed by Chinese companies, universities and research programmes that appear to be civilian entities. 

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

The Pentagon on Jan 7 also added SenseTime Group and ChangXin Memory Technologies, singling out a the Chinese maker of memory chips considered crucial to Beijing’s semiconductor and AI development endeavours.

The agency also named oil major CNOOC and Cosco Shipping Holdings, both of which have been previously targeted by Washington.

The focus has shifted from “traditional” military contractors to include companies that develop tech products with potential military applications, according to Assistant Professor Dylan Loh from Nanyang Technological University in Singapore.

It shows “the broadening ambit of national security”, Mr Loh said. “This is not just from the US but an arguably global one, where countries are increasingly securitising products, technologies in the name of national security.”

The move comes amid an intensifying tech rivalry between the two countries.

The US has imposed export controls to restrict China’s ability to build an advanced semiconductor industry and use artificial intelligence for military purposes. In response, Beijing has tightened its own export controls, including a ban in Dec 2024 on several materials with high-tech and military uses to the US.

The Biden administration has used the metaphor “small yard, high fence” over the past two years to explain its move to limit China’s access to technology.

The concept is that sensitive technologies should be contained within a small yard, secured by a high fence of trade and investment controls. This would apply only to advanced technologies with military applications, while broader commercial trade and investment with China would remain unaffected.

But the latest move targets Tencent and CATL, which, on paper, do not appear to have regular business dealings with the PLA. Tencent, China’s most valuable company, is seen as a pioneer in China’s internet and private sector, creating a so-called everything app that Mr Musk has held up as a model for X. 

During the first Trump administration, the US government sought to ban WeChat – Tencent’s messaging service that has evolved into a payment, a social media and an online services platform – citing national security concerns. 

CATL is not only a major supplier to Tesla but also to many of the world’s biggest carmakers, including Stellantis to Volkswagen. In August, Mr Rubio asked the Pentagon to target the Chinese battery-maker because of its potential to become a crucial supplier to the PLA.

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

Beijing has repeatedly criticised what it sees as the over-securitisation of the US.

“Small yard, high fence shouldn’t become large yard, iron curtains,” Chinese Foreign Minister Wang Yi told US State Secretary Antony Blinken in September.

On Jan 7, China’s Foreign Ministry again condemned US sanctions and vowed to defend its companies’ rights.

“We urge the US to immediately correct its wrongdoings and end the illegal unilateral sanctions and long-arm jurisdiction on Chinese companies,” Mr Guo Jiakun, a ministry spokesman, said at a regular press briefing in Beijing.

China has made it clear that it is prepared to challenge the US in any future trade disputes.

On top of its export ban on critical minerals including germanium and gallium, Beijing last week announced plans for stricter controls on shipments of technology used in battery materials. It is also placing more American companies on its Unreliable Entity List, taking a similar approach to the US.

“Given Beijing’s propensity to respond to US actions with tit-for-tat moves, it wouldn’t be out of the question for Beijing to place a non-defence-related company on one of these lists in symbolic retaliation,” said Ms Kendra Schaefer, a partner at consultancy Trivium China. BLOOMBERG

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