The US government has announced sanctions on Chinese entities including the state-owned China Communications Construction Company (CCCC), calling the move a response to Beijing’s “militarisation” of outposts in the South China Sea.
Visa restrictions will apply to individuals and businesses “responsible for, or complicit in, either the large-scale reclamation, construction, or militarisation of disputed outposts in the South China Sea, or [the People’s Republic of China’s] use of coercion against Southeast Asian claimants to inhibit their access to offshore resources”, US Secretary of State Mike Pompeo said on Wednesday.
The US Commerce Department added 24 units of CCCC, including China Communications Construction Company Dredging Group Company (CCCC Dredging)to an “entity list” of companies that US firms are not allowed to transact with unless they have a special licence to do so, according to Pompeo’s statement.
Satellite images analysed by defence consultancy IHS Jane’s in 2016 showed that a subsidiary of CCCC Dredging operated most of the giant barges digging sand from the seabed and piling it on remote coral atolls in the South China Sea, including Mischief Reef, Subi Reef and Fiery Cross Reef, which are also claimed by the Philippines and Vietnam.
“CCCC and its subsidiaries have engaged in corruption, predatory financing, environmental destruction, and other abuses across the world,” the statement said. “The PRC must not be allowed to use CCCC and other state-owned enterprises as weapons to impose an expansionist agenda.”
Sanctions against entities and individuals identified as violating “freedom of the seas … consistent with international law” and the environmental degradation caused by these activities also apply to family members, although no individuals were identified in Wednesday’s statement.
Disputes between Beijing and Washington over the South China Sea are commonly cited as a flashpoint for possible military conflict, a concern highlighted by news reported earlier on Wednesday that China launched two missiles, including an “aircraft-carrier killer”, into the area.
The move came one day after China said a US U-2 spy plane entered a no-fly zone without permission during a Chinese live-fire naval drill in the Bohai Gulf off its northeast coast.
“We are playing a game of chicken, with the United States maintaining its operations in the South China Sea while trying to increase the costs to China of its position; and China warning the United States if it continues down this path, the result could be war,” said Oriana Skylar Mastro, a fellow at the Freeman Spogli Institute for International Studies at Stanford University.
“The problem is it is unclear when we get to the point of no return – what pushes China over the edge to take some drastic action that the US will have no choice but to respond to with force,” said Mastro, who is also a foreign and defence policy fellow at the Washington-based American Enterprise Institute.
“That’s the challenge with moving up the escalation ladder, you don’t know when you’ve reached the top,” she said.
A senior State Department official briefing reporters after Wednesday’s announcement cited the 2016 international tribunal ruling in The Hague, which found that artificial islands China had built in areas near the Philippine coastline, including at Mischief Reef, violated Manila’s sovereign rights.
The Hague tribunal said in that ruling that Beijing’s claims to much of the waters in the South China Sea had no legal basis.
The State Department official said the new sanctions were meant to follow up on Pompeo’s official rejection last month of all Chinese claims beyond the 12-nautical mile territorial area around the Spratly Islands.
That statement cited, in particular, Beijing’s claims to the waters surrounding Vanguard Bank off of Vietnam; the Luconia Shoals off Malaysia; the area within Brunei’s exclusive economic zone; and Indonesia’s Natuna Besar Island.
The sanctions support “Southeast Asian coastal states in upholding their sovereign rights, and to reflect our deep concern over the increasingly brazen manner in which Beijing has deployed coercive tactics to inhibit other claimants access to offshore marine resources”, the official said.
The State Department’s move aims to tie alleged violations in the South China Sea together with Beijing’s dealings with other countries on its Belt and Road Initiative (BRI) projects.
The sanctions announcement was characterised by the State Department official as “the work of shining light on … the association between the kind of bullying we see in the South China Sea and the kind of bullying that we see around debt-trap financing of ports around the world, or the abuse of local workforces on port projects or railway projects around the world”.
The State Department drew a direct connection between CCCC and problems related to BRI projects with Pompeo assailing the conglomerate for being “one of the leading contractors used by Beijing in its global ‘One Belt One Road’ strategy”, and accused the company of “corruption, predatory financing, environmental destruction, and other abuses across the world”.
CCCC has led the construction of numerous BRI projects, including the increasingly controversial multibillion-dollar Standard Gauge Railway, or SGR, which has been running freight and passengers between Kenya’s capital, Nairobi, and the coastal port city of Mombasa since 2017.
Amid reports that the Kenyan government has been forcing importers to use the train and questions over whether the project will sustain itself without government subsidies, an appellate court in the country declared in June that the rail contract between Kenya and the China Road and Bridge Corporation, a CCCC subsidiary which was awarded a US$3.2 billion contract in 2014 to build the rail line, was illegal.
SGR made US$136 million in revenues from cargo and passenger services in 2019, and Kenya’s parliament disclosed in June that Kenya Railways had not paid US$380 million in management fees owed.
The State Department official cited a list of other BRI projects now mired in controversy, including the Hambantota port in Sri Lanka, where the government gave China Merchants Port Holdings Company an 85 per cent stake in the port for US$1.1 billion. The South Asian country had been struggling to repay upwards of US$8 billion in debt to China.
The addition of CCCC and its affiliates to the Commerce Department’s entity list will also add friction to an already tense bilateral relationship, even if the total sales affected are modest.
Sales by US companies to the 24 CCCC entities added to the list amounted to about US$5 million in the past five years, according to a department official, who joined the State Department briefing.
The restriction applies not only to equipment and commodities, but also software and technology, and any applications for export, re-export or transfer to the targeted CCCC units will face a “presumption of denial”, he said.
The entity list had already been a source of deep contention between Washington and Beijing before Wednesday’s announcement, since it already included dozens of subsidiaries of China’s Huawei Technologies, in a bid to address concerns by US officials and lawmakers that the telecommunications giant is a threat to American national security.
Last week, the Commerce Department added another 38 Huawei affiliates in 21 countries to the list, effectively preventing foreign companies from exporting US technology to the entities without a licence.
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