Before markets could finish shrugging off their losses from overnight, another wave of troubling trade news has arrived to sour the trading mood.
Not only is Washington weighing whether to impose restrictions on Hangzhou Hikvision Digital Technology – a CCTV company that’s the largest supplier of video surveillance equipment for Beijing’s indomitable security apparatus – as was reported last night, but four other Chinese firms might also find their way onto the “Entities List,” Washington’s blacklist. Like Huawei(which has been put on a temporary hold), the restrictions being considered would cut off the flow of critical American components to as many as five companies.
The only other firm named by Bloomberg was Zhejiang Dahua Technology, another supplier for the Chinese security state, along with “several unidentified others.” All the firms are said to be security-focused.
Shares of both companies led Chinese markets lower on Wednesday, wiping billions of dollars of wealth for the tycoons behind both companies.
Any action taken against these two companies would constitute the first actions to cripple China’s security apparatus, which has drawn international condemnation over the imprisonment of 1 million ethnic Uyghurs in the far-West Xinjiang province. Both companies have been accused of facilitating Beijing’s repressive activities, according to human rights groups, and Hikvision, the industry leader in Chinese security, has begun selling its cameras abroad. These cameras are capable of using facial recognition technology on a vast scale.
Reports about Washington’s plans, rattled Chinese stocks in afternoon trading, with the small-cap ChiNext gauge recording the biggest drop (1.1%), while the Shanghai Composite also skidded (0.7%). The Japanese yen strengthened against most G-10 rivals.
For an idea of how Beijing would react to more bans, remember: Blacklisting one company prompted President Xi to herald the beginning of a “new Long March”. A trade war “fight song” has gone viral across China. Another escalation from the US would only help cement the widely held notion that Trump is deliberately trying to ‘contain’ China, unleashing another wave of fervent trade-war nationalism.
It’s still unclear whether more companies will join Huawei on the “Entities List”, which blocks the sale of American technology to a given firm without special permission. Washington has rooted its attacks on Huawei as a matter of ‘national security’, as Washington fears most of these firms would assist Beijing in global espionage.
In response to the reports, Global Times editor Hu Xijin warned that China would adapt to more hostility to the US.
The US won’t be able to press China to submit, however it will force China to re-prioritize economic development. China has been focusing on improving social justice and fairness for some time. Now to hit back at the US, China will see another upsurge of overall development boom.
— Hu Xijin 胡锡进 (@HuXijin_GT) May 22, 2019
We imagine we’ll be hearing more from Beijing soon.
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Author: Tyler Durden