China’s National People’s Congress (NPC), meeting in Beijing, announced Monday (March 8) that it will speed up legislation in foreign-related areas to promote anti-sanctions. The announcement came just over a week after China’s two largest telecom state-owned enterprises, China Telecom and China Putian, were rumored to be merging and restructuring to become a so-called “communications supercarrier. U.S. experts believe that many of CEC’s subsidiaries are under U.S. sanctions, and that the so-called merger and reorganization is likely to be a diversion to avoid sanctions, which Washington should be wary of.
Li Zhanshu, chairman of the Standing Committee of the Chinese National People’s Congress, said on Monday that the coming year to speed up foreign-related legislation, around anti-sanctions, anti-interference, anti-long-arm jurisdiction, etc., to enrich the legal “toolbox” to address challenges and prevent risks, and promote the formation of a systematic and complete system of foreign-related laws and regulations.
Anti-sanctions electronic communications industry to build a step ahead of the “IT supercarrier”?
Earlier than Li’s announcement, it was announced in late February that China’s two largest central enterprises, China Electronics Technology Group Corporation (CETC) and China Putian (Potevio), were preparing to merge and reorganize.
Ltd., a subsidiary of China Putian, announced on Feb. 24 that China Putian is planning a restructuring with CETC, and that the overall property rights of China Putian are to be transferred into CETC without compensation, which is subject to the approval of the relevant authorities.
CEC is a state-owned enterprise directly managed by the Chinese central government, and occupies a dominant technological position in China’s domestic military electronics and network information fields. According to Chinese media reports, CEC is the only military industry group in China that can provide information technology equipment for all military branches at the same Time; it is the only enterprise group in China that can provide all kinds of key components for various types of equipment for the Chinese Communist Party‘s military. CEC has 46 national research institutes and 11 listed companies, with 220,000 employees. The listed companies include Hikvision, Guo Rui Technology, Si Chuang Electronics, Jiesai Technology, Phoenix Optical, Huadong Computer, Tian Ao Electronics, Weistone, Taiji Corporation, ST Electric Energy, and China Ceramic Electronics.
Among them, Shanghai-listed video surveillance equipment maker Hikvision was sanctioned by the U.S. for alleged human rights violations in Xinjiang and blacklisted by the Pentagon as a Chinese military affiliate in June 2020.
Since 2018, at least six of CEC’s institutes have been listed as entities by the U.S. Department of Commerce.
China Putian is a central enterprise directly managed by the State-owned Assets Supervision and Administration Commission of the State Council, with the full name China Putian Information Industry Group Co. and about 20,000 employees. But China Putian has not seized the 5G opportunity like huawei, which had five listed companies with sluggish performance, including Shanghai Putian, which was voluntarily delisted in 2019.
According to Chinese media, the two companies will become a “super carrier” that will become the so-called third largest company in China’s information technology sector after the restructuring.
Voice of America sent requests for interviews to the two companies, but did not receive a response by press time.
Zhang Jiadun: China May Have Moved to Evade Sanctions
Gordon Chang, a conservative columnist and author of “The U.S.-China Tech Wars,” said the restructuring is consistent with the Chinese Communist Party’s penchant for turning big companies into mega-corporations. He said the restructuring could be a move to avoid U.S. sanctions.
Merging these businesses would bring needed relief to financially troubled China Putian, but it also creates a hidden advantage for Beijing,” he told VOA. Dubbed by Chinese media as a new “IT (communications) aircraft carrier,” the combined business would be more conducive to avoiding the U.S. Commerce Department’s “entity list” designation. CEC has many sanctioned subsidiaries and will now have more resources to support these sanctioned divisions. In addition, CEC could launch a shell game to change the name of the company and transfer assets and operations to a non-sanctioned company.”
Any action taken by Chinese officials is not with good intentions, he said, so the U.S. needs to keep a close eye on what happens after this merger.
Zhang added that the merger is similar to the last time Huawei announced it was selling off its subsidiary phone brand “Honor” to avoid sanctions. In November last year, Huawei announced the sale of its “Glory” phone in order to protect it from U.S. government sanctions.
According to Ainikki Riikonen, a research associate in the Technology and National Security Program at the Center for a New American Security (CNAS), the choice of telecommunications companies as well as suppliers to the Communist Party’s military suggests that the restructuring is a measure to increase China’s resilience to U.S. sanctions.
Riikonen: Restructuring will reduce transparency of these companies
On the surface, the restructuring can be viewed in the context of China’s efforts to reform state-owned enterprises over the long term, especially given that the restructuring was announced shortly after the new three-year action plan for SOE reform was announced,” Rikkonen told Voice of America. In addition, the Biden administration appears to continue to restrict Chinese companies, and this restructuring could also be seen as an effort to build resilience at both companies.”
Rikkonen added, “The placement of technology companies associated with the Communist Party’s military at the top of the list of state-owned enterprises to be restructured reflects in large part the high priority given to China’s defense technology industry in policy actions. China’s ’14th Five-Year Plan’ is expected to prominently reflect China’s civil-military integration strategy, so it is no surprise that boosting CEC and the military-related China Putian is a good idea. The selection of telecommunications companies may be particularly important given the central role they have played in recent years in tensions and competition between the United States and China. Communications networks will continue to be a key area of competition between the two countries in the economic, security and military arenas.”
The announcement of this restructuring of China Putian and CEC came a day after the State-owned Assets Supervision and Administration Commission of the Chinese State Council held a press conference on the reform and development of state-owned enterprises.
Hao Peng, director of SASAC, said at the conference that China will promote restructuring, integration, adjustment and optimization during the 14th Five-Year Plan period to accelerate the creation of a number of leading enterprises in industry and a number of leading enterprises in science and technology innovation.
Corporate mergers and restructuring has been the key to China’s SOE reform since 2016. Peng Huagang, secretary-general and spokesman of SASAC, responded to the restructuring of SOEs at the meeting, saying that during the 13th Five-Year Plan period, the restructuring of 24 central enterprises in 12 groups has been completed, and 5 new enterprises have been formed and received, with the number of central enterprises adjusted from 106 at the end of the 12th Five-Year Plan to 97 at present. The number of central enterprises has been adjusted from 106 at the end of the 12th Five-Year Plan to 97 at present.
The restructuring will further reduce the transparency of these companies’ activities, making it more difficult for international analysts to track them, said Rikkonen of the Center for a New American Security. But this lack of transparency is nothing new. She expects U.S. policymakers will continue to develop more risk-based options to deal with entities with ties to the Communist Party’s military.
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