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Pentagon Names 20 Chinese Firms It Says Are Military-Controlled

Tony Capaccio and Jenny Leonard

(Bloomberg) -- The Pentagon unveiled a list of companies it says are owned or controlled by China’s military, opening them to increased scrutiny in the latest spat between the world’s biggest economies.

The 20 companies included Huawei Technologies Co. and Hangzhou Hikvision Digital Technology Co., as well as a number of state-run enterprises. In letters to lawmakers dated June 24, the Pentagon said it was providing a list of “Communist Chinese military companies operating in the United States,” which was first requested in the fiscal 1999 defense policy law.

This list includes “entities owned by, controlled by, or affiliated with China’s government, military, or defense industry,” Pentagon spokesman Jonathan Hoffman said in a statement.

“As the People’s Republic of China attempts to blur the lines between civil and military sectors, ‘knowing your supplier’ is critical,” Hoffman said. “We envision this list will be a useful tool for the U.S. government, companies, investors, academic institutions, and like-minded partners to conduct due diligence with regard to partnerships with these entities, particularly as the list grows.”

While the move may be largely symbolic since it doesn’t confer new authorities on the president, it comes as relations between the two superpowers continue to deteriorate, and as China has emerged as a key foreign policy issue in the U.S. election campaign. The U.S. has threatened sanctions against China for its treatment of Muslim minorities and increased grip over Hong Kong, while Beijing has for the past year threated to produce its own blacklist of U.S. companies.

The U.S. list of companies said to be affiliated with the Peoples Liberation Army was mandated under the Defense Authorization Act of 1999, but no administration ever put out the required report. Trump has the authority under the International Emergency Economics Powers Act of 1977 to level financial sanctions against those companies.

‘Baseless’

China’s foreign and defense ministries, as well as the State-owned Assets Supervision and Administration Commission, which oversees China’s government-run companies, didn’t immediately reply to a fax during a public holiday in the country. Huawei, which already faces a number of restrictions from the U.S. government, also didn’t immediately reply to a request for comment.

Hikvision called the U.S. move “baseless,” saying its ownership details have always been publicly available as a listed company and “independently operated enterprise.” It said it would continue to work with the U.S. government “to answer questions and correct misunderstandings about the company.” The company was among a number of Chinese entities put on a blacklist last year by the Trump administration.

“Hikvision strongly opposes the decision by the U.S. government to misapply a never-used provision of a 21-year-old law,” a company spokesperson said. “Not only is Hikvision not a ‘Chinese military company,’ Hikvision has never participated in any R&D work for military applications.”

China has long pursued a policy known as ‘civil-military integration’ that allows enterprises from both sectors to share dual-use technologies. In some cases, the policy allows the Chinese military to access technologies that might otherwise be difficult to obtain under sanctions imposed after the 1989 Tiananmen Square massacre.

“The list put out today by the Pentagon is a start but woefully inadequate to warn the American people about the state-owned and -directed companies that support the Chinese government and Communist Party’s activities threatening U.S. economic and national security,” Republican Senator Marco Rubio said in a statement.

China hawks in Congress have long pushed him to direct his Treasury Secretary Steven Mnuchin to deploy sanctions against Huawei. It’s unclear, however, whether the president would be willing to take such aggressive action against some of China’s most prized business champions in an election year, as the Beijing government would likely retaliate against American companies.

‘Long Overdue’

Derek Scissors, a China expert at the conservative American Enterprise Institute, said it was “long overdue for the government to indicate which Chinese firms have tight links to the PLA. But if there’s no meaningful action coming with that, it would just be posturing, possibly in reaction to the Bolton book.”

In his memoir, which on sale Tuesday, former National Security Advisor John Bolton asserted that Trump asked Xi Jinping, China’s leader, to bolster purchases of American agricultural products to help him win re-election in November. Trump has rejected that claim.

Some of the other major companies on the list include:

Aviation Industry Corporation of China: Known AVIC, this state-owned company makes military and civil aircraft, and also provides plane components to Airbus SE and Boeing Co.

China Aerospace Science and Technology Corporation and China Aerospace Science and Industry Corporation: These are state-owned companies that manufacture military components as well as satellites and unmanned aerial vehicles.

China Railway Construction Corporation: This is a state-owned company that’s involved in construction of infrastructure projects such as railroads, tunnels and port terminals.

China Telecommunications Corp.: This company owns Hong Kong-listed China Telecom Corp., the country’s No. 2 phone company, with $54 billion in revenue last year. The Federal Communications Commission is reviewing the license for China Telecom’s U.S. unit, saying the company’s links to the government pose a national security risk. State-owned China Telecom’s lawyers responded earlier this month with a letter saying the company obeys all U.S. laws and does not present a security risk.

China Mobile Communications Group Co.: It owns China’s biggest mobile phone operator, with more than 940 million subscriptions. The FCC denied the U.S. arm of Hong Kong-listed China Mobile Ltd. a license for the U.S. last year, saying that granting the application “would raise substantial and serious national security and law enforcement risks.”

Here is the full list: Aviation Industry Corporation of China; China Aerospace Science and Technology Corporation; China Aerospace Science and Industry Corporation; China Electronics Technology Group Corporation; China South Industries Group Corporation; China Shipbuilding Industry Corporation; China State Shipbuilding Corporation; China North Industries Group Corporation; Huawei Technologies Co.; Hangzhou Hikvision Digital Technology Co.; Inspur Group; Aero Engine Corporation of China; China Railway Construction Corporation; CRRC Corp.; Panda Electronics Group; Dawning Information Industry Co.; China Mobile Communications Group; China General Nuclear Power Corp.; China National Nuclear Power Corp.; China Telecommunications Corp.

(Updates with detail throughout)

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