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China says it will blacklist ‘unreliable’ companies and individuals in response to technology ban   

Miners at work at the Bayan Obo mine in Inner Mongolia, China, in July 2011. (Reuters)

BEIJING — In a counterattack that further deepens the rift with the United States, China announced Friday that it would establish a blacklist of “unreliable” foreign companies and organizations, effectively forcing companies around the world to choose whether they would side with Beijing or Washington.

Chinese state media reported that the new “unreliable entities list” would punish organizations and individuals that harm the interests of Chinese companies, without detailing which companies would be named in the list or what the punishments would include.

But the implications are far-reaching. Chinese reports suggest that the Commerce Ministry will directly target foreign companies and groups that abandoned Huawei after the Trump administration leveled sanctions this month that prohibited firms from doing business with the Chinese technology giant.

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To comply with the U.S. executive order, a wide range of organizations have cut ties with Huawei in recent weeks. They include software providers such as Google, British chipmakers, and the publishing arm of the New York-based Institute of Electrical and Electronics Engineers, which said it would no longer allow Huawei scientists to peer-review journal publications.

Chinese President Xi Jinping said on May 22 that his country must prepare for difficult times as the U.S.-China trade war continues. (Video: Reuters)

At a time when Western corporations have cut back executive travel to China after Chinese authorities detained two Canadians on national security grounds in December, the new blacklist sent another shock wave through the business community.

“I think foreign and especially U.S. firms now have to worry that China is creating a new ‘legal pretext’ to at least impose exit bans on foreign individuals who make this new list, if not worse,” said Bill Bishop, editor of the Sinocism newsletter, referring to the Chinese practice of not allowing designated foreigners to leave China.

Every foreign executive that has had to cut off ties with Huawei to comply with U.S. sanctions could now be targeted under the Chinese measure. “It puts them in a bind: Choose U.S. law or Chinese regulations?” Bishop said.

The spiraling tit-for-tat is reinforcing a sense in Washington and Beijing that the world's two largest economies are destined to unwind a system of mutual economic dependency built over the past three decades.

Trump’s executive order this month abruptly deprived the Shenzhen company access to operating systems and cutting-edge semiconductors, prompting China to accelerate efforts to build homegrown alternatives to Google and Intel.

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Aside from establishing the new blacklist, China also recently escalated threats to cut the United States off from its supply of rare-earth metals: 17 elements with names such as cerium, yttrium and lanthanum that are found in magnets, alloys and fuel cells and are used to make advanced missiles, smartphones and jet engines.

Analysts say China’s rare-earths threat is highly credible because it could take years for the United States to ramp up production of its own rare earths — the domestic industry practically disappeared in the 1990s. Roughly 80 percent of U.S. imports come from China, according to the U.S. Geological Survey.

As of 2018, the top three rare-earths producers were China, at 120,000 metric tons; Australia, at 20,000 metric tons; and the United States, at 15,000 metric tons, USGS figures show. 

The People's Daily, the Communist Party's official mouthpiece, carried a stark warning for the United States this week in an editorial about rare earths: “Don’t say we didn’t warn you.” 

That commentary surprised China experts because the People’s Daily, which often signals official positions with subtly codified language, uses that phrase sparingly: It famously appeared before China launched border attacks against India in 1962 and Vietnam in 1979.

The Department of Defense is now seeking new federal funds to boost domestic producers of rare earths and wean the United States off its dependence on China, Reuters reported Thursday.

The mutual escalations are “a signal to the rest of the world that you need to reassess your critical supply chains,” said Fraser Howie, an independent analyst and author of “Red Capitalism.”

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The Chinese threats against U.S. rare-earths imports — and foreign executives — will only reinforce the position of trade hawks in Washington who argue that “we need to decouple, we need to unwind 20 or 30 years of global supply chains with China as the nexus,” Howie said.

Yao Xinchao, a professor at the University of International Business and Economics in Beijing, said other measures Beijing is considering include a sell-off of U.S. dollars and Treasury bonds, although both would exact enormous tolls on China.

“A trump card countermeasure would hit hard, take effect fast, and be something where China has a great say globally — that’s why threatening a rare-earths ban makes perfect sense,” Yao said. “There is no way we back down right now, especially considering that Huawei has fallen victim to U.S. bullying.”

Today’s coverage from Post correspondents around the world

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