MNI EXCLUSIVE: China Unreliable List May Be Unused In US Spat

China is trying to keep relations with the U.S. from boiling over and causing further damage to its economy even as Washington steps up actions aimed at Beijing over accusations of espionage and intellectual property theft, government sources and advisors told MNI, adding that an "unreliable entity list" designed to target American companies was unlikely to be deployed for now.

While Sino-U.S. relations hit a new low last week when the U.S. told China to close its consulate in Houston, prompting Beijing to take equivalent action aimed at the U.S. mission in Chengdu, one source described the situation as "ugly but controllable." Other sources said the two countries had put "a full stop" after the incidents, with one noting the U.S. had briefed Beijing before its move, although without specifying the location of the consulate in question.

China is adopting a more measured approach in its diplomacy, sources said, with some even referring to previous "misjudgements" by Beijing's diplomats. In the past, policymakers and state-owned media had indicated that the government was considering putting multinational corporations including Qualcomm and Cisco on a so-called "unreliable entity list", but the sources said this was becoming less likely, and one said the list might never be published at all.

RESTRAINED REACTION

"This does not mean China will not react to U.S. policies, but China won't overreact or allow disputes to spill over into other sectors," one source said, adding that China may choose not to respond to U.S. moves targeting its businesses, and that in any case, any Chinese countermeasures would be "very very restrained".

Sources and advisors told MNI that China has tried hard to de-escalate the consulate spat. One noted that China had turned over a researcher suspected of spying by U.S. authorities, who had taken refuge in China's San Francisco consulate. China also waited until it was certain the shutdown of its Houston consulate was irreversible before announcing the formal closure date for the U.S.'s representation in Chengdu, a source said.

"The U.S. is seeking to start a new cold war, but China should not take the bait. It's impossible for China to challenge the U.S. now," one of the officials said. "Over the next few months, China will try to ignore the U.S. and at the same time call on other governments to do the same thing."

Despite previous talk of an unreliable entities list, China has not deployed the tool, making no mention of it when it announced unspecified sanctions against Lockheed Martin earlier this month.

"The list was originally intended as a deterrent tool, but it contradicts other Chinese policies aimed at keeping American companies in China as Washington seeks to decouple," said Shi Yinhong an expert on U.S.-China relationship from Renmin University and an advisor to the State Council.

"Countermeasures [in response to U.S. measures] will be taken in strict equivalence, in order to limit any extension of the situation," Shi said.