The inclusion of China’s state-owned commercial jet maker on the Trump administration’s sanctions list could disrupt Beijing’s plans to carve out a big piece of the lucrative industry for its homegrown champion, given the company’s high dependence on US suppliers.
Beijing’s hopes of challenging the lock held by Boeing and Airbus on the large commercial jet market rest primarily on Commercial Aircraft Corporation of China, or Comac.
With China forecast to be the biggest source of demand for such planes in the coming years, Comac has been winning an increasing share of local orders for smaller jets with its ARJ21 model. But it is seeking to move into the midsized market with its C919, which is still undergoing flight tests.
The US Department of Defense said on January 14 that it would add Comac, phonemaker Xiaomi and seven other Chinese companies to a list of companies judged to be linked to the Chinese military and thus meriting special scrutiny. Under an executive order signed last year by then President Donald Trump, American investors must halt investing in such companies.
Unlike Xiaomi, Comac is not a publicly traded company, so the investment ban will probably have limited direct impact, though the company has sold bonds domestically. The risk, though, is that the addition to the military list sets up Comac’s addition to the so-called entity list maintained by the US Department of Commerce. That would then restrict the ability of US companies to export products to the plane maker.
This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
Referring to the possibility that the latest military-linked companies will be added to the entity list, Edison Lee, an equity analyst at Jefferies in Hong Kong, compared their situation to that of Chinese oil company Cnooc, which the Department of Commerce singled out, also on January 14, 43 days after its inclusion on the military list.
“The risk looks high,” Mr Lee said, adding that Xiaomi and the others will follow the same path.
That would be a big problem for Comac. The engines for its C919 are made by CFM International, a joint venture between General Electric and France’s Safran. The ARJ21’s engines come from Connecticut-based Pratt & Whitney.
A regional spokeswoman for Pratt & Whitney referred questions about the impact of the US defence department’s move to parent company Raytheon Technologies. A Raytheon spokesperson said the company would look into the situation, while GE had not responded to Nikkei Asia by the time of this article’s publication.
Comac’s website includes a number of other US companies as “tier one” suppliers of key component systems, including Honeywell, B/E Aerospace, Donaldson, Moog and Parker Hannifin.
In its statement about Comac, the Pentagon said it was determined to highlight and counter China’s “military-civil fusion development strategy”, which supports the modernisation of the People’s Liberation Army through securing advanced technologies and expertise via private companies and universities. Though Comac focuses on commercial aircraft, aviation technologies can often be redeployed for military purposes.
State-backed companies have long sought to absorb foreign aerospace technologies, especially for engine making.
Stanley Chao, a veteran US consultant to the aviation industry, said on Friday that it was “common knowledge” in the industry that Comac has military ties.
For Mr Chao, who has connected a number of US “tier two” suppliers to Comac over the years, “the damage has been done already in terms of technology transfer”.
Chinese state companies “now have the basic foundation and the knowledge to do [manufacturing] on their own,” he said, after years of absorbing knowledge from foreign partners and suppliers. He added that non-US companies are ready to step into any openings created by exiting suppliers.
Comac is a strategically important company for Beijing. It was set up to fulfil the country’s dream of building and producing proprietary midsized-to-large commercial jets, a sector dominated by the US and Europe.
With the original approval given by the State Council in 2002, the company took off in 2008 with an investment by the central government’s State-owned Assets Supervision and Administration Commission, or SASAC, and several other major large-scale state-owned enterprises, such as the Aviation Industry Corporation of China, or AVIC.
According to Comac’s latest annual report, published in April 2020, SASAC owns 52 per cent of the company. The first nine months of 2020 were rough for Comac, with its revenue down 35 per cent from the same period a year earlier to Rmb2.73bn ($422m), while its net loss bloated by almost sixfold to Rmb1.54bn.
Unlike Huawei Technologies, which was a significant global presence in telecommunications equipment and smartphones when it was added to the entity list, Comac’s sales have been overwhelmingly domestic. With the state controlling most of China’s airline and jet leasing sectors, Comac has been getting a steady stream of local orders for both the ARJ21 and C919.
China Aircraft Leasing Group Holdings, a subsidiary of state-owned China Everbright Group, this month ordered 60 ARJ21s as part of a plan to promote Chinese aircraft in south-east Asia. According to research by Scott Kennedy of the Center for Strategic and International Studies in Washington, Comac has received 1,065 orders for the C919 from 32 companies, all but two Chinese.
The Chinese airline industry is expected to order 8,725 jets with more than 50 passenger seats over the next 20 years, according to a Comac projection from November that valued those planes at about $1.3tn based on 2019 catalogue prices.
Up for question is whether Joe Biden’s administration in the US will maintain the policy trajectory of blacklisting Chinese companies.
Mr Chao expects the new administration to hold off adding Comac to the entity list given that “a lot of American jobs” would be at risk.
“Too much future business is at stake, and the damage has already been done,” he said.
Speaking more broadly about the latest defence department list additions, Jefferies’ Mr Lee said that whether a move to the entity list proceeds “will give us a good indication on what direction Biden’s China policy will be heading”.
“We are confident there will be some de-escalation of the China-US tech war, with the US likely moving more to technology-specific export restrictions, rather than company-specific (ones),” he said.
A version of this article was first published by Nikkei Asia on January 15. ©2021 Nikkei Inc. All rights reserved.
Polish women count cost of tough abortion curbs
Even before Poland all but outlawed abortion, Zofia has been thinking about moving abroad. But the near-ban that took effect earlier this year helped her make up her mind: this autumn she plans to move to Prague in the Czech Republic.
“I feel better there, freer, and being a woman there doesn’t make me feel weaker or worse,” she said. “I love my life in Warsaw. But when the [abortion ban was mooted], I thought, I don’t want to live here any more . . . And I don’t want my kids to live here.”
The 31-year-old artist is one of thousands of Polish women outraged by the tightening of the country’s abortion laws which, even before the overhaul, were among the strictest in the EU. Their anger centres on a ruling by the Constitutional Tribunal in October last year, which declared that a 1993 law allowing abortions in the case of severe foetal abnormalities was unconstitutional.
The ruling came into force in January, leaving only two grounds for an abortion in Poland: a threat to the mother’s health or if the pregnancy is a result of rape or incest. Such cases made up just 2.4 per cent of the 1,100 legal abortions in Poland in 2019.
Hundreds of thousands of Poles took to the streets when the ruling was announced in October, and activists have called for another round of protests on International Women’s Day this Monday. Polling suggests that a majority of Poles back some form of liberalisation.
Anti-abortion campaigners, often guided by their religion in what remains one of Europe’s most strongly Catholic countries, say the change was needed to protect the rights of unborn children.
“An unborn child is a separate person, which has its own body and its own rights. A child must not be deprived of the fundamental right of every human being — the right to life,” Kaja Godek, one of Poland’s most prominent anti-abortion campaigners, wrote on Facebook last month.
But activists say the ruling will force women to give birth to babies with such severe abnormalities that they have no chance of survival. They also say the government has done too little to help the families of children born with disabilities, who receive only limited support.
“I’m terrified because for me as a woman in reproductive age, it means getting pregnant in Poland became dangerous. And I’m afraid for my sister, for my colleagues and friends, for my relatives and for many other women I meet every day as clients,” said Kamila Ferenc, a lawyer from the Federation for Women and Family Planning, a women’s rights group.
“They will be in a horrible position . . . they have lost the possibility to decide freely on their own, because it’s not so easy to have an abortion outside the system.”
In the past, Polish women who could afford it were able to seek abortions in neighbouring countries with more liberal laws, such as the Czech Republic or Slovakia. But with the pandemic limiting travel, experts say women are likely to turn to the internet to buy drugs from overseas that would allow them to carry out abortions at home. Women are not prosecuted for self-managed abortions carried out before the 22nd week of pregnancy.
“It used to be the case that illegal abortions were through surgical procedures by doctors and back-alley providers. Then abortion tourism rose in the early 2000s after Poland joined the EU. Now we are seeing an increase in self-managed abortions, which can be less of a financial and emotional burden,” said Maria Lewandowska, a researcher into reproductive health at the London School of Hygiene and Tropical Medicine.
Justyna Wydrzynska, from Abortion Dream Team, a group that helps women who want to terminate their pregnancies, said that since the abortion rules were tightened in January, the organisation had received three times the normal number of calls from women seeking help.
“We get around 600 to 700 phone calls a month. Around 100 of them need to go abroad [for an abortion], and for the rest, . . . these are mostly people in need of pills, assistance in taking pills or post-abortion care,” she said.
“Often they are human dramas. Some people approach it in a task-oriented way, others very emotionally. Sometimes it is very difficult.”
Despite the huge protests last year, women’s rights groups acknowledge that as long as Poland’s conservative-nationalist Law and Justice party remains in power, the prospect of the laws being loosened is minimal. But they hope that in the long run, the debate sparked by the ruling will lead to greater support for liberalisation.
“The factual situation of pregnant women is worse. But on the other hand I think we are now on a better track to change the situation than when [the previous government led by the centre-right] Civic Platform ruled and everybody thought everything was all right,” said Ferenc.
“There is more courage in society to speak about abortion. People educate themselves and each other. I think that we now have more solidarity and strength in society to fight for reproductive rights. ”
Hong Kong dropped from economic freedom index after crackdown
Hong Kong has been dropped from a prominent index of the world’s freest economies, underlining growing concerns over Beijing’s tightening grip on the Asian financial centre after it introduced a national security law last year.
The announcement from the Heritage Foundation, a conservative US think-tank, came as the majority of a group of 47 pro-democracy politicians were refused bail in a case that critics say shows the rapid decline of civic freedoms in the city.
The Heritage Foundation also dropped the Chinese special autonomous region of Macau, a casino hub and former Portuguese colony, from the rankings.
The foundation in recent years has been aligned with the administration of former US president Donald Trump.
“No doubt both Hong Kong and Macau . . . enjoy economic policies that in many respects offer their citizens more economic freedom than is available to the average citizen of China,” the Heritage Foundation said. “But developments in recent years have demonstrated unambiguously that those policies are ultimately controlled from Beijing.”
Beijing imposed the national security law on Hong Kong last year in response to anti-government protests that engulfed the city in 2019.
The measures are part of a clampdown on civil and political freedoms guaranteed to the city for 50 years following its handover from the UK to China in 1997. Authorities are targeting anyone viewed as disloyal to the Chinese government in politics, education and the media.
The Hong Kong government has long taken pride in studies showing its economy to be one of the most liberal in the world, with the city marketing itself as an international business haven given its low tax rates and open port.
The Heritage Foundation last year replaced Hong Kong at the top of its “Index of Economic Freedom” with Singapore, toppling it from a position it had held for 25 years, but still included the territory in the rankings in second place.
The Hong Kong government said it was ‘dismayed’ by the Heritage Foundation’s decision and said it was “politically biased”.
The case against the 47 pro-democracy lawmakers and activists has been seen as a test of whether the city’s legal system can withstand pressure from Beijing.
Authorities charged the group with subversion, alleging they aimed to topple the government by staging an unofficial primary vote to select candidates to run for election to the city’s legislature. Subversion is punishable with up to life imprisonment under the national security law.
The bail hearings, presided over by a judge appointed to oversee national security cases, entered their fourth day on Thursday.
Victor So, the judge overseeing the case, only granted bail to 15 out of 47 defendants under harsh conditions, but the prosecution immediately appealed the ruling, returning them to custody until the appeal hearing takes place.
On top of the usual bail conditions, the court ordered the defendants to not participate in elections or make any public political statements.
Sessions have often stretched late into the evening, including one that continued until 3am before the defendants were hauled back before the court the next day. At least one defendant collapsed inside the courtroom and six others were sent to hospital for treatment.
As they exited the court, some defendants shouted: “Political criminals are not guilty, Hong Kongers will not die!”
Simon Young, a law professor at the University of Hong Kong, said the treatment of the defendants was “most unsatisfactory”. Jerome Cohen, a Chinese law expert at New York University, said the way the hearing was conducted “makes a farce of procedural fairness”.
Some of the defendants have faced multiple trials simultaneously and were forced to shuffle between courtrooms.
The defendants’ lawyers said on Tuesday their clients had not bathed in three days, forcing the judge to delay the hearing to allow them to wash.
Hong Kong has tight restrictions on reporting the substance of bail hearings.
Hundreds of supporters have queued each day in an attempt to watch the proceedings in person. Many held placards and chanted banned political slogans, risking prosecution under the security law.
Pakistan’s finance minister ousted in surprise defeat for Imran Khan
Pakistan’s prime minister Imran Khan suffered a major political setback on Wednesday, when his finance minister was defeated in a contest for a seat in the country’s senate.
Khan must now appoint a successor to the cabinet post by June 11 under Pakistani law. The surprise defeat of finance minister Abdul Hafeez Shaikh, a respected economist and former world bank official who led the country’s negotiations with the IMF for a $6bn loan, comes amid an escalating campaign by main opposition parties to have the prime minister removed from office.
Elected officials vote to fill vacated seats in the senate every three years. Following the result, the government announced it would “take a vote of confidence in parliament” to prove that the prime minister retained a majority of support.
Business leaders have warned that Shaikh’s departure creates uncertainty over the future of Pakistan’s fiscal policies as the country battles the pandemic’s fallout on the economy.
“Right now, it was essential to give a message of confidence to a range of stake holders within and outside Pakistan on the state of our economy. Now, people will be left asking questions,” the president of a private Pakistani bank told the Financial Times.
An 11-party opposition alliance, the Pakistan Democratic Movement (PDM), has accused Khan of using the powerful military to tip the 2018 election result in his favour — which leaders from the prime minister’s party have denied — and for failing to revive the moribund economy.
The PDM has announced a March 26 deadline for Khan to step down or face widespread opposition protests.
Though some opposition leaders have said they plan to follow up Wednesday’s defeat with a vote of no confidence against Khan, analysts said it was too early to predict his downfall ahead of the end of his five-year term in 2023.
“It’s a major upset for Imran Khan and his PTI (Pakistan Justice Party),” said Huma Baqai, a political commentator at the University of Karachi. “The government from hereon will face further pressure as the opposition continues to step up its campaign.”
The vote count suggested a break in Khan’s PTI party, with as many as 16 party members either voting for the finance minister’s opponent, former prime minister Yusuf Raza Gilani, or spoiling their ballots.
Shaikh’s defeat “will not automatically lead to the prime minister’s downfall. Some PTI members clearly changed sides [for this vote]. But it will be much harder for them to agree to removing the prime minister,” an opposition leader told the FT.
Faisal Javed, a PTI leader, claimed some representatives had been bribed by the opposition. “There has been a major corruption. There has been horse-trading. People have been sold,” he told the local ARY news channel on Wednesday. Opposition leaders have denied this.
The electoral college for the senate consists of members from legislatures of Pakistan’s four provinces as well as the lower house of parliament in Islamabad known as the national assembly.
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