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US-China tensions

US blacklists Belt and Road builder for role in South China Sea

CCCC among state companies sanctioned as China flexes muscle with missile launch

CCCC is involved in the construction of Pakistan's Gwadar Port, a key project in the Belt and Road Initiative, through subsidiary China Harbor Engineering Corp.   © Reuters

NEW YORK -- The U.S. on Wednesday blacklisted one of China's biggest construction companies which helped build islands in the South China Sea, as part of broader sanctions against individuals and companies deemed involved in advancing Beijing's claims in the contested waters.

Subsidiaries of China Communications Construction Co. (CCCC), which has built thousands of miles of roads and bridges and dozens of ports in countries along Beijing's Belt and Road, are among the 24 Chinese state-owned enterprises added to the Commerce Department's Entity List, barring them from receiving U.S. exports without a license.

Also as part of the Wednesday action, individuals -- who have already been identified by the State Department -- and possibly their immediate family members will no longer be admissible into the U.S.

In a statement, U.S. Secretary of State Mike Pompeo labeled CCCC one of Beijing's weapons "to impose an expansionist agenda," blasting it for the "destructive dredging" of South China Sea outposts, as well as corruption, debt-trap financing and environmental destruction.

The same day, China reportedly launched missiles in the sea -- a show of strength that appeared likely to further inflame tensions. An American defense official told Reuters that Chinese forces launched four medium-range ballistic missiles into the waters between Hainan Island and the Paracel Islands. The source said the U.S. was still looking into the type of weapons involved.

A U.S. Navy crewman aboard a P-8A Poseidon surveillance aircraft views a computer screen showing Chinese construction on the reclaimed land of Fiery Cross Reef in the disputed Spratly Islands in the South China Sea. (U.S. Navy via Reuters)

In 2016, CCCC struck an agreement with Manila-based Mega Harbour Port and Development to conduct a 208-hectare land reclamation project in Davao City, where Philippine President Rodrigo Duterte was once mayor. The city later backed out of the project.

According to Fitch Ratings, the Shanghai- and Hong Kong-listed company signed a total of $63 billion in new contracts in Belt and Road countries from 2013 to 2018, making it one of the Chinese initiative's largest participants.

This past December, CCCC won a $10 billion bid with Phillipine billionaire Lucio Tan's MacroAsia Corp. to build the Sangley Point Airport outside of Manila, only to draw scrutiny from the military.

CCCC was also responsible for the design and construction of Malaysia's longest bridge.

"CCCC is one of [Belt and Road]'s biggest players, with 923 active projects in 157 countries," political risk consultancy Eurasia Group said in a note Wednesday. "It is most notable for involvement in Sri Lanka's Hambantota Port, Pakistan's Gwadar Port, and Italy's Trieste and Genoa ports," although subsidiary China Harbor Engineering Corp., which handles most of these projects, was not one of the sanctioned entities.

Vanguard, BlackRock, Fidelity, and Charles Schwab all hold shares of the publicly traded parent company, Eurasia noted.

With the moves Wednesday, the U.S. government hopes to "encourage ... institutions and governments around the world to assess risk and reconsider business deals with the sort of predatory Chinese state-owned enterprises that we've identified here," a senior State Department official later told reporters.

Over the last five years, the U.S. only recorded about $5 million in exports to the two dozen Chinese companies targeted, according to another senior U.S. official, meaning the transactions subject to the new rule are relatively limited.

But "typically many companies tend to stay away from doing business with parties on the Entity List" even if the transactions are not subject to export regulation, for reputational purposes or out of caution, the official said, citing past experience with such orders.

This is not the first time CCCC landed on a blacklist. The World Bank debarred the company from 2009 to 2017 for fraudulent practices under the Philippines National Roads Improvement and Management Project.

A Fortune 500 company, CCCC raked in 626 billion Hong Kong dollars ($81 billion) in revenue last year.

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