U.S. firms in Taiwan arms sales penalized

China has decided to add three companies in the United States to its unreliable entities list over their arms sales to China's Taiwan region, the Ministry of Commerce announced on Monday.

The U.S. companies — General Atomics Aeronautical Systems, General Dynamics Land Systems and Boeing Defense, Space&Security — will be barred from engaging in China-related import or export activities, and are forbidden from making new investments in China, the ministry said in two online notices.

Analysts said the move is a rightful countermeasure to safeguard China's national security and territorial integrity. The weapons sales to China's Taiwan region by these U.S. companies pose a threat to peace and stability across the Taiwan Strait, they said.

The unreliable entities list targets foreign companies, organizations and individuals who disrupt market rules, breach contract norms, halt supplies for noncommercial reasons or significantly harm the legitimate rights and interests of China and its businesses, according to the ministry.

Zhang Hua, a researcher at the Chinese Academy of Social Sciences' Taiwan Studies Institute, said this action underscores the necessity of adhering to Chinese laws and regulations for businesses operating within China.

While China remains open to international companies, it will decisively penalize those profiting from undermining the country's sovereignty and territorial integrity, Zhang said.

The three companies' inclusion on the unreliable entities list means that the government will neither approve nor maintain the work permits, stays or residence qualifications in China for their senior executives.

Moreover, Boeing Defense, Space&Security will be subject to fines amounting to twice the value of its arms sales to China's Taiwan region. The company must pay the penalties within 15 days or face additional sanctions, according to the ministry.

After China placed U.S. defense contractors Lockheed Martin Corp and Raytheon Missiles&Defense on its unreliable entities list in February 2023, the Chinese government found that the U.S. company Caplugs evaded regulations prescribed under the unreliable entities list by transferring products purchased from China to companies on China's unreliable entities list.

Caplugs has been urged to take immediate measures to prevent the transfer of goods, technologies and services imported from China to companies on the unreliable entities list and to provide relevant evidence of compliance.

Failure to do so will prompt Chinese authorities to enforce actions in accordance with applicable laws and regulations, said the ministry.

Gao Lingyun, a researcher at the Chinese Academy of Social Sciences' Institute of World Economics and Politics, said that without proper order, significant disruptions can occur in the global market. The unreliable entities list can effectively deter further violations of international economic and trade rules and the multilateral trading system.

By penalizing rule breakers, a fair trading order among businesses can be established and a trustworthy business environment can be preserved for the world, Gao added.