China imposed fines and sanctions against two US defense companies in a further escalation of tensions between the world’s biggest economies.
(Bloomberg) — China imposed fines and sanctions against two US defense companies in a further escalation of tensions between the world’s biggest economies.
Lockheed Martin Corp. and a subsidiary of Raytheon Technologies Corp. were added to a list of “unreliable entities” for selling weapons to Taiwan, China’s Ministry of Commerce said in a statement Thursday.
As with previous sanctions announced against the firms and other US defense contractors, these measures aren’t expected to disrupt operations, analysts said. The sanctions and fines targeted Raytheon’s missile and defense subsidiary, “which sells nothing into China,” while avoiding commercial divisions that export jet engines, navigation equipment and other components to the nation, noted George Ferguson of Bloomberg Intelligence.
Lockheed’s shares dipped 1.3% at 11:22 a.m. in New York., while Raytheon was down 0.6%.
“The move by China today is largely symbolic, and we do not believe China would jeopardize its emerging aviation recovery by limiting its access to spare parts or services associated with its commercial aircraft fleet,” Ken Herbert, an analyst with RBC, told clients in a report.
Lockheed, the world’s largest defense company, said it works “closely with the US government on any military sales to international customers.” The company said it adheres strictly to government policy in such deals. A Raytheon spokesman declined to comment.
The notice said the companies will be fined twice the contract value of their arms sales to Taiwan since September 2020 when the list first came into effect, without specifying the amount. The companies are required to pay within 15 days.
China considers the democratically self-ruled Taiwan as part of its territory and has long complained about the US supplying weapons to the island.
A day before the announcement China had warned that it would hit the US with “countermeasures” over violations of its sovereignty, and on Thursday blamed the US for jeopardizing ties by overreacting in the ongoing spat over a balloon. However, the subsequent announcement of sanctions may further escalate that dispute.
Washington contended that the balloon was spying and shot it down, while China claims it was a civilian airship collecting weather data that went off course.
It’s unclear if the latest sanctions will prevent a meeting between US Secretary of State Antony Blinken and Wang Yi, China’s top diplomat on the sidelines of the Munich Security Conference this week. Blinken canceled a planned trip to Beijing this month when the balloon controversy erupted.
“It’s a message to the US, but also for domestic consumption – to demonstration China’s tough position,” said Dongshu Liu, an assistant professor specializing in Chinese politics at the City University of Hong Kong. “The economic consequences might not be as strong as the political ones — those companies don’t do business in China. They may face some limitation as a result of these new sanctions, but still, it’s largely politically symbolic.”
Unclear Effects
The Chinese government will ban trade with both firms as well as blocking new investment from the two into China, the ministry said in a statement. If the companies don’t pay the fines within 15 days the ministry may increase the fines.
In addition, it will cancel and prohibit work and residence permits for the companies’ senior managers and ban them from entry into the country.
This action “shows that China’s retaliation remains very targeted and refrained, responding to US’ arms sales toward Taiwan, over which China has lodged its protest many times in the past,” said Feng Chucheng, a Beijing-based partner at independent consultancy Plenum. “China is not weaponizing its sanctions, which is consistent with China’s longstanding policies.”
China has threatened sanctions against US entities that damage its national security in the past. In 2020 it said it would impose unspecified sanctions on Boeing Co.’s defense unit, Lockheed Martin, and Raytheon after the US State Department approved arms sales to Taiwan.
Last September, Beijing said it was sanctioning two top executives at Boeing and Raytheon over the biggest US weapons deal with Taiwan in almost two years, but didn’t provide details on the measures.
“Naming two already sanctioned companies onto the list for the first time actually proves that MOFCOM wants to take it slow and experiment with how to implement the new unreliable entity list,” according to Andy Chen, a senior analyst with Beijing-based consultancy Trivium China. The list “was created in haste as a response to US’s long-arm jurisdiction but MOFCOM wasn’t ready to deploy it at the time because it lacked the experience — and probably personnel — to carry it out.”
–With assistance from Julie Johnsson, Li Liu, Rebecca Choong Wilkins and Kari Lindberg.
(Updates with analyst comments, share trading, company responses beginning in third paragraph)
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