EU could agree to new sanctions on Chinese firms next week, diplomats say
EU sanctions on Chinese firms accused of funnelling banned European goods to the Russian military could be agreed as early as next week, according to diplomatic sources.
Eight companies based in mainland China and Hong Kong are on a draft list of entities accused of reselling European chips and microelectronics that can be used in high-grade weaponry, such as cruise missiles.
As part of previous sanctions packages, Russian buyers have been banned from accessing such goods that are made in Europe.
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The sanctions would be sure to ratchet up tensions between the European Union and China, which has repeatedly warned Brussels that it will retaliate.
While the final details of a broader 11th package of EU sanctions since the invasion of Ukraine are still being haggled over, two diplomats said they were confident of a breakthrough next week.
A third diplomat expected the package to pass in the coming weeks, before foreign ministers meet in Brussels on June 26.
Greece and Hungary oppose listing the Chinese firms, said two diplomats close to the talks. But while sanctions require unanimity among the EU's 27 members, they were confident that these countries would not block the overall bundle on what is considered a relatively uncontroversial point.
Some EU capitals are uncomfortable with the idea of replicating the long-arm sanctioning techniques of the United States, but there is also conviction that third countries should not be providing loopholes through which European goods can reach Russia's war machine.
Four of the listed companies have already been sanctioned by the United States: Chinese outfits 3HC Semiconductors and King-Pai Technology, and Hong Kong-based firms Sinno Electronics and Sigma Technology. Also listed are Hong Kong entities Allparts Trading, Asia-Pacific Links, Tordan Industry and Alpha Trading Investments.
A more contentious element of the package is a new instrument that would allow the EU to restrict certain exports to an entire country as a last resort, where it is deemed to have consistently flouted sanctions and where diplomatic efforts to resolve the situation fail.
Failure to agree on this tool has delayed the passage of the latest raft of punitive measures. Germany has proposed restricting shipments to entities instead of countries. But even if it was adopted, diplomats said it would be more likely to target Central Asian and Gulf countries rather than China.
China has repeatedly warned the EU against sanctioning its companies and its representatives have said it will respond in kind.
"If the European side imposes sanctions on Chinese companies without providing us with any solid evidence to show that these companies are engaged with activities that may circumvent or that have circumvented the EU sanctions on Russia, then we certainly will retaliate," said Fu Cong, the Chinese ambassador to the EU, in an interview with the New Statesman last week.
"I understand this 11th round of sanctions is aimed mainly at preventing circumvention. If the EU side has evidence that Chinese companies are engaged in such activities, please show us the evidence," he continued, adding that Beijing would be willing to help Brussels investigate the breaches.
While European businesses have generally toed the line in supporting sanctions, they will be nervously eyeing the travails of US memory chip firm Micron Technology, which was blocked from Chinese markets after Beijing said it was a national security risk.
However, the move is widely seen as part of an escalating tech war. Washington is trying to keep advanced semiconductors and the technology used for making them out of Chinese hands, with Beijing forced to respond.
There are also concerns in the business community that Brussels is reducing the bloc's competitiveness, as it looks to become more geopolitical.
On June 20, the EU is set to propose an economic security strategy which will include some initial guidelines on screening outbound investments destined for China.
The plan is to prevent European companies from investing in Chinese hi-tech businesses that may have links to the military - in sectors such as robotics, artificial intelligence, semiconductors and quantum computing - amid concerns over the transfer of vital know-how and technologies.
Businesses are worried about the proposal.
"BusinessEurope does not support by principle introducing limitations on outbound investment. Only in exceptional cases where serious security concerns are effectively proven this could be a last resort measure," read a report last month from a major lobby group.
"The private sector should be consulted to ensure that the measures adopted are effective whilst fully preserving the EU's global competitiveness."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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