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China Cannot Afford To Go After American Companies

Wall Street should stop worrying about China retaliating Against American companies doing business in China. There’s little chance that Beijing will exercise this option to get even with Washington’s sanctions against Huawei.

That’s according to Jeff Yastine, senior equities analyst at Banyan Hill Publishing.

This despite a Xinhua press release last week, that indicates China to have paved the way for going after American “entities” with a big presence in the Chinese market.

“Foreign enterprises, organizations and individuals that do not comply with market rules, violate contracts, block or cut supplies to Chinese firms with non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises, will be added to the list of unreliable entities,” says the Xinhua press release.

Yet Yastine is skeptical about China following through with this threat.

“While published reports say China is compiling lists of companies that could be individually targeted, I’d take those reports with a grain of salt,” he says.“This is all part of the ‘ratcheting up’ of pressure as both sides try to show how committed they are to their trade positions. It would be more worrisome if the Chinese government actually moved against a US company, pulling its goods from stores or curtailing its operations within its borders. “

That would certainly escalate the tensions between the two sides, and make it less likely that a solution would be reached any time soon.
Besides, China had many chances to exercise this option in the past, but it didn’t. Why should to it now?

“It’s a telling sign that despite the past 18 months of trade tensions, China hasn’t actually taken the next step in pulling the plug on a US company’s business yet,” adds Yastine. “I’m not saying it can’t happen, but in all that time the Trump administration has gone after Huawei individually, and in 2018, another Chinese telecom giant, ZTE. China’s had every chance to retaliate and hasn’t. That tells me that it is extremely reluctant to play that card, knowing it brings the trade war to a whole other level.”

Still, the more the trade war rages on, the more likely it becomes that American companies with a large presence in China could become the target of regulatory action by Beijing, as was the case back in 2014 when China’s National Development and Reform Commission launched an investigation into the company’s business practices in that county.

The investigation made it difficult for the company to collect royalties from Chinese manufacturers, as stated in the company earnings reports; and resulted in a one billion dollar fine imposed a year later.

Then there’s the potential of a public backlash, as was the case back in 2016, when the company’s stores in China couldn’t escape the angry protests of Chinese nationalists trying to boycott Apple products.

The reason? Apple is seen as an American business icon. And America has been on the Philippines side on the South China Sea dispute. That’s something Beijing and the nationalists who carry its message to the streets cannot accept or comprehend – though an international arbitration court found that China has no historic title over the waters of the South China Sea, a ruling which served to contain China’s ambition to control trade and resources in the region.

The bottom line: While American icons are at risk of some backlash from the US-China trade war, Wall Street should stop worrying about Beijing going exercising the option to get even with Washington.
Source: Forbes

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