U.S. Sanctions Chinese Firms and Executives Active in Contested South China Sea
Companies include units of CCCC, a leading contractor for Xi Jinping’s Belt and Road initiative to develop infrastructure and trade links across Asia, Africa and beyond
By Kate O’Keeffe in Washington and in Hong Kong
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The U.S. unveiled a set of visa and export restrictions targeting Chinese state-owned companies and their executives involved in advancing Beijing’s territorial claims in the contested South China Sea, a new challenge to China involving the strategic waters.
Wednesday’s actions by the State and Commerce departments apply to a variety of state-owned enterprises, including units of China Communications Construction Co., a leading contractor for Chinese leader Xi Jinping’s Belt and Road initiative to develop infrastructure and trade links across Asia, Africa and beyond.
The U.S. added 24 Chinese companies active in the South China Sea—including five CCCC subsidiaries—to a Commerce Department list that restricts U.S. companies from supplying U.S.-origin technology to them without a license. The State Department said it is rendering ineligible for U.S. visas a group of unspecified executives whom the U.S. alleges have been involved in malign activities in the South China Sea.
The moves follow a formal U.S. declaration last month that Washington opposes a swath of Chinese claims in the South China Sea. Secretary of State Mike Pompeo said the policy change was part of an effort to uphold international law against what he called a “might makes right” campaign by China to coerce and intimidate its Southeast Asian neighbors into ceding their interests in the region.
Beijing asserts sovereignty over most of the South China Sea, and its claims overlap with those of six governments, including five Southeast Asian countries. Under Mr. Xi, China has built artificial islands on Chinese-controlled features in the area and fortified them with weaponry—a program that has continued despite Mr. Xi’s promise in a 2015 press conference at the White House not to “militarize” the islands.
Since 2013, China has constructed more than 3,000 acres across seven features in the South China Sea, which include air-defense and antiship missile features, the Commerce Department said Wednesday. Commerce Secretary Wilbur Ross said the companies targeted in the new actions “played a significant role in China’s provocative construction of these artificial islands and must be held accountable.”
The U.S. doesn’t have claims in the South China Sea but has said it wants to ensure freedom of navigation in the resource-rich waters that host vital shipping lanes. Washington has also urged claimant states to resolve disputes peacefully and in accordance with international law.
Assistant Secretary of State David Stilwell has called CCCC and other state enterprises involved in China’s activities in Southeast Asia “modern-day equivalents of the East India Company,” the muscular conglomerate that powered Britain’s colonial empire.
The U.S. actions are part of an attempt to label CCCC “the Huawei of infrastructure," according to a senior administration official, referring to China’s crown-jewel telecommunications company, Huawei Technologies Co. The U.S. has been engaged in a multiyear campaign to halt Huawei’s global expansion, saying Beijing may use the company to spy on people. Huawei has denied the allegations.
The U.S. official accused CCCC and its units of engaging in corruption, predatory financing, and environmental destruction in projects in Sri Lanka, Malaysia, Kenya, Tanzania, the Philippines and elsewhere.
Neither CCCC nor the Chinese Embassy in Washington could immediately be reached for comment.
Listed in Hong Kong and Shanghai, CCCC is one of China’s largest infrastructure companies, employing more than 124,000 people across businesses that span transportation infrastructure, dredging and heavy machinery, among others.
CCCC is a major contractor in Mr. Xi’s Belt-and-Road initiative, through which Beijing envisions developing a global network of ports, roads, railways, pipelines and industrial parks, largely built by Chinese companies and funded with credit from Chinese lenders. U.S. and other Western officials have blamed the initiative for advancing opaque financial deals that give Beijing political leverage by burdening countries with Chinese loans.
The U.S. official said another factor prompting Wednesday’s actions is CCCC’s role in Beijing’s military-civil fusion program, which encourages Chinese civilian entities to work with the People’s Liberation Army in a common goal of bolstering defense.
In July 2018, CCCC’s military-civilian fusion office signed a “strategic cooperation” agreement with the PLA’s Naval Logistics Academy, pledging to collaborate on matters related to the development of maritime defense projects, theoretical research and big-data, among other areas, according to a social-media account run by the company.
It wasn’t clear how the U.S. sanctions might affect CCCC, though it is known to have business interests in the U.S. The company has invested in a roughly $1 billion commercial, retail and residential real-estate development in Los Angeles known as The Grand. A CCCC subsidiary, Shanghai Zhenhua Heavy Industries Co., also known as ZPMC, is one of the world’s largest port-machinery manufacturers and has supplied cranes and related services to U.S. ports.
CCCC’s China Harbor Engineering Corp. unit built the controversial Hambantota port in Sri Lanka. Unable to repay Chinese loans for the project, the Sri Lankan government granted another Chinese state-owned company a 99-year lease on the facility. U.S. officials have called the episode among the most notorious examples of “debt trap diplomacy” and say it was part of an underhanded attempt by China to gain a valuable strategic outpost. Beijing has denied any ulterior motives for its Belt and Road projects and says they promote development and benefit all parties.
As part of China’s Belt-and-Road initiative, CCCC took on rail and pipeline projects in Malaysia involving former prime minister Najib Razak and fugitive Chinese financier Jho Low, two figures now targeted in a multibillion dollar fraud investigation centered on the Malaysian state investment fund 1Malaysia Development Bhd, or 1MDB, The Wall Street Journal has reported.
CCCC was among the companies involved in a Beijing-led effort to build airports in Greenland that the White House thwarted in 2018 over fears it could give China’s military a foothold in the North American Arctic.
In June, a Kenyan appellate court ruled that the state-owned Kenya Railways Corp. had violated procurement rules in engaging CCCC unit China Road and Bridge Corp. to build a railway in the east African country, potentially throwing a wrench into the multibillion-dollar project that is already partially operational.