Chinese rail and nuclear giants may face US sanctions after appearing on Pentagon list

China Railway Construction Corporation (CRCC) and rolling-stock maker CRRC have been named on a list of Chinese companies that the Pentagon says are too close to the Chinese state and its armed forces, opening them up to future sanctions.

Also on the list are China’s two main nuclear power companies, one of which has a stake in the Hinkley Point C station now being built in the UK.

The US Defence Department published the names to inform Congressional committees and warn potential clients and investors in the companies that the US government regards them as a security risk.

The list was mandated by a 1999 defence policy law that required the compilation of a list of firms "owned or controlled" by the People’s Liberation Army, and that also exported commercial goods or services. It is understood that such a list was never produced until now.

Some US media speculate that the list is an attempt to boost President Donald Trump’s anti-China credentials ahead of the November election.

Although there are no immediate consequences for the listed firms, the law says the president may impose sanctions on them. It is therefore likely to have a chilling effect on the companies’ dealings with US partners, and may make other companies and governments wary of entering into commercial relationships with them.

A statement from the Pentagon, published in a number of news outlets, described the companies as "entities owned by, controlled by, or affiliated with China’s government, military, or defence industry".

It adds: "As the People’s Republic of China attempts to blur the lines between civil and military sectors, ‘knowing your supplier’ is critical. We envision this list will be a useful tool for the US 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."

Most of the companies named deal in advanced digital technology, such as Huawei, and Hangzhou Hikvision, a partially state-owned maker of video surveillance and security equipment.

Other construction-related names are China General Nuclear Power Corporation (CGN) and the China National Nuclear Power Corporation.

CGN is a 33.5% owner (with France’s EDF) of the new nuclear power plant, Hinkley Point C, now under construction in the UK. 

It is not clear why the Pentagon should have picked out two railway companies for special scrutiny from among the many very large contractors in China’s construction and rail infrastructure sectors.  

China is generally regarded as a leader in rail technology (see further reading), and the US has a limited high-speed rail network on which to develop its own advanced systems. The country’s fastest line, Amtrak’s Acela Express between Washington, DC, and Boston presently uses Canadian trainsets from Bombardier, and is shortly to switch to French rolling stock from Alstom.

Both rail companies named have extensive international operations, and both are large – CRCC is the third biggest contractor in the world, with a revenue of around $100bn, and CRRC has a revenue of $30bn. However, CRCC was the railway arm of the People’s Liberation Army between 1948 and 1982, and the Pentagon may believe that it has maintained close relations.

Most of the companies on the list have not issued a public statement, with the exception of Hikvision, which said it strongly opposed "the decision by the US government to misapply a never-used provision of a 21-year-old law. Not only is Hikvision not a ‘Chinese military company’, but it has never participated in any R&D work for military applications".

The Pentagon’s action follows a letter sent in November from two senators, Democrat Chuck Schumer and Republican Tom Cotton, to Wilbur Ross, the commerce secretary. In it, they asked what action had been taken in response to the Export Control Reform Act of 2018 and the 2019 National Defence Authorisation Act, which aim to restrict the export of technology that might help the Chinese military.

There was also speculation in the US media that the list had been published in response to a memoir from John Bolton, the former national security adviser, which accused President Trump of asking China’s President Xi Jinping for help in getting re-elected.

The companies named are:

• 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
• Hangzhou Hikvision Digital Technology
• Inspur Group; Aero Engine Corporation of China
• China Railway Construction Corporation
• CRRC Corp.; Panda Electronics Group
• Dawning Information Industry
• China Mobile Communications Group
• China General Nuclear Power Corporation
• China National Nuclear Power Corporation
• China Telecommunications Corporation

Image: Hinkley Point C nuclear power station, now being built in the UK, is 33.5% owned by China General Nuclear, which is on the Pentagon’s list (EDF)

Further reading:

• China developing 400km/h bullet train that can run on any gauge track
• Work on China’s 1,000km maglev railway "to begin next year"
• China plans 2,000km of high-speed rail lines as part of $390bn transport budget
  
• Etihad Rail signs $1.2bn deal with China Railways