On Pointe
Beijing-controlled Enterprises Little Hindered by U.S. Sanctions Aimed at Specific Subsidiaries
On 26 August, the DoC added five subsidiaries of state-owned China Communications Construction Company (CCCC ) to the Entity List for their role in building islands in the South China Sea, which Beijing subsequently militarized. [1] In so doing, DoC increases the certification requirements for U.S. companies and third nations’ companies who do business in the U.S. before they can legally send exports to the listed PRC enterprises. One implicit assumption of the sanctions and the underlying laws is that the leverage that U.S. regulators and law enforcement have over U.S. and other exporters will result in starving the sanctioned PRC enterprises of U.S. products or services that they demand, and in so doing hamper or curtail aspects of their missions which threaten U.S. national security. A second implicit assumption required for the sanctions to have the curtailing effect is that the sanctioned PRC enterprises have free agency—i.e., are independent actors in control of the choices they make—and responding principally to profitability, mirror imaging U.S.-type corporate structure.
While it is reasonably accurate to assume that U.S. and third nation exporters will respond to U.S. regulators and law enforcement, the second assumption—that PRC enterprise subsidiaries have free agency—is fundamentally flawed, calling into question the efficacy of listing individual PRC enterprises.
CCCC is a key central SOE and one of the People’s Republic of China’s (PRC) largest contractors, responsible for much of the construction across Beijing’s One Belt, One Road (OBOR). As an SOE, CCCC and its subsidiaries are controlled by and pursue the objectives of the Communist Party of China (CPC) and the PRC’s State-owned Assets Supervision and Administration Commission (SASAC), an essential tool for Beijing to exert control over PRC strategic industry sectors. The CPC is the ultimate and only relevant agent determining the motives and intent of PRC enterprises and their subsidiaries.
By only listing select CCCC subsidiaries, Washington limits its leeway to curb actions detrimental to U.S. national security presented by the entire PRC enterprise. PRC SOEs operating in the United States exercise a much higher degree of control over their subsidiaries than U.S.-style corporations operating consistent with U.S. law, which treats parent companies similarly to shareholders. PRC parent enterprise direct administrative control over their subsidiaries stretches beyond China’s physical borders and informs how subsidiaries behave overseas, ultimately making these parent enterprises responsible for the actions of their subsidiaries.
CCCC subsidiary Shanghai Zhenhua Heavy Industries (ZPMC)—not one of the four CCCC subsidiary enterprises listed by the U.S. DoC on 26 August—is one of the largest port machinery manufacturers in the world and is active in the U.S. port sector. ZPMC has seven known offices in the United States and exports gantry crane equipment to ports across the entire country. Port equipment is embedded with digital components that integrate cranes into U.S. port digital infrastructure, creating surveillance capabilities and possible disruption vulnerabilities at U.S. strategic locations.
In summary, the U.S. DoC listing of four CCCC subsidiaries may prove to have limited curbing effect on the listed enterprises’ and their owner CCCC’s actions in the South China Sea, or in the United States. According to CCCC, “the core equipment for the dredging business of [CCCC] did not use any technology supplied by or imported from U.S. enterprises.” As an agent of the CPC, the CCCC—and indeed similar PRC enterprises—pose increasing national security risks to the United States and its partners both within and beyond the South China Sea. This is why the DoC should consider applying sanctions higher up the enterprise chain of command to more effectively address U.S. national security concerns.