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US sanctions list includes company constructing Colombo Port City

US sanctions list includes company constructing Colombo Port City

The US has last week imposed sanctions on 24 Chinese companies making it illegal for American companies to export products to these entities without a government license.

This decision would affect China Communications Construction Company (CCCC), which is the parent company of China Harbour Engineering Company (CHEC), engaged in constructing the Colombo Port City.

CCCC was previously involved in the construction of the Hambantota Port and the Mattala International Airport.

This is the first time the US has sanctioned Chinese companies involved in building artificial islands in the South China Sea.

China has constructed artificial islands in the South China seas including the Fiery Cross Reef, Subi Reef and the Port City in the seas of Sri Lanka.

The South China Morning Post reported that the US’ blacklisting of the Chinese contractor at the centre of Beijing’s island-building activity in the disputed South China Sea could have a disruptive ripple effect across Asia, diplomatic observers have said, pointing to the firm’s extensive presence from Sri Lanka to the Philippines

The censure’s impact might also be felt by American firms that would be required to obtain licences before they exported products to support Asian projects linked to the CCCC, the analysts said.

Malaysia’s $ 10.5 billion East Coast Rail Link, the $ 1.4 billion Port City Colombo in Sri Lanka and a new $ 10 billion airport outside the Philippine capital of Manila are among CCCC’s marquee overseas projects.

Given the scale of the Chinese firm’s regional presence, observers who had spoken to This Week in Asia predicted multiple governments as well as local corporate entities that had partnered with CCCC and its subsidiaries would be scrambling in the coming days to figure out just how the sanctions worked.

CCCC is embedded in Asian economies partly because of their participation in the Belt and Road Initiative (BRI), Beijing’s multibillion-dollar infrastructure programme.

Political risk consultancy Eurasia Group in a note has said the company was currently involved in 923 projects in 157 countries.

National University of Malaysia international relations researcher Hoo Chiew Ping has said CCCC’s involvement was one of the criteria used within the research community to assess whether a project was part of the belt and road plan.

Another Malaysian scholar of Chinese diplomacy Ngeow Chow Bing has suggested a tough road ahead for corporate entities linked to CCCC projects.

“Sanctions like this indicate that any CCCC-related projects, present or future, will have to avoid US companies,” Ngeow, director of the Institute of China Studies at the University of Malaya, has said. “It creates more complications for Malaysia for sure, and the full extent of how far the US will go remains to be seen.”

Five CCCC subsidiaries were among 24 Chinese companies that the US Commerce Department has last week added to its so-called entity list, which bans the companies from receiving US imports without a license.

The building of artificial islands is not in itself illegal under international law, though the US and the 10 members of the Association of Southeast Asian Nations (Asean) say Beijing’s militarisation of the man-made islands threatens freedom of navigation and overflight in the South China Sea.

US Secretary of State Mike Pompeo has said China should not be allowed to use CCCC and other state-backed entities to “impose an expansionist agenda”, while a senior administration official was quoted in The Wall Street Journal as saying the censure was aimed at labelling CCCC as the “Huawei of infrastructure”.

Observers have said while the CCCC entities that were included on the entity list did not have direct dealings in projects such as Malaysia’s East Coast Rail Link – seen as one of the belt and road strategy’s crown jewels – these developments might still be impacted.

The Asia Group Vice-President John Lichtefeld has said; “While the initial listings may not directly or immediately impede CCCC’s operations in support of major regional infrastructure projects, additional measures or blacklisted subsidiaries could begin to raise obstacles”.

Drew Thompson, a former US defence department official now at the Lee Kuan Yew School of Public Policy at the National University of Singapore, has noted that CCCC was also involved in projects that were not part of the belt and road plan, such as public housing projects in Singapore.

He has suggested “marquee” US companies such as the Illinois-headquartered heavy equipment manufacturer Caterpillar could be impacted by the US censure of CCCC.