Thayer Consultancy Background Brief:

ABN # 65 648 097 123

Carlyle A. Thayer
South China Sea: U.S.
Sanctions Chinese
Companies
August 27, 2020
The U.S. government has ordered sanctions on Chinese entities, calling the move a
response to Beijing’s militarisation of outposts in the South China Sea.
We request your assessment about this latest development. Our main concerns are
set out in the questions below:
Q1. The U.S. Commerce Department added 24 units of State-owned China
Communications Construction Company to an entity list of companies that U.S. firms
are not allowed to transact with. And visa restrictions will be applied to people and
businesses linked to activities in the disputed waters in the South China Sea. What is
your assessment? Will these U.S. actions have any affect?
ANSWER: This move is long over-due, but it is largely symbolic and will not change the
status quo in the South China Sea.
In 2016 an Arbitral Tribunal set up under the United Nations Convention on the Law
of the Sea (UNCLOS) found that China’s construction of artificial islands in the Spratlys
entailed massive damage to coral reefs and the marine environment. Because UNCLOS
contains no enforcement mechanism China was not penalised and never paid
restitution for the damage it caused.
After 2016, China has stepped up physical intimidation and harassment of oil and gas
exploration activities by Vietnam, Malaysia and the Philippines. Last year, the United
States responded to Vietnam’s call for support from the international community by
condemning Chinese bullying and intimidation aimed at preventing littoral states from
exploiting their oil and gas reserves for national development.
The United States took two actions. The Department of State imposed visa restrictions
on Chinese officials “responsible for, or complicit in, either the large-scale
reclamation, construction, or militarization of disputed outposts in the South China
Sea, or the PRC’s [People’s Republic of China] use of coercion against Southeast Asian
claimants to inhibit their access to offshore resources.” The immediate family
members of Chinese officials denied visas could also be denied entry into the United
States.
The Department of Commerce added twenty-four Chinese state-owned enterprises to
the Entity List, including several subsidiaries of China Communications Construction
Company (CCCC). The CCCC was identified as one of the main companies responsible
 2

for the destruction of coral reefs to build artificial islands. U.S. companies cannot work
with the CCCC or its subsidiaries without a special license.
Q2. Why does the US choose this time to issue those sanctions?
ANSWER: The restrictions imposed on Chinese officials and state-owned enterprises
are a further step in the Trump Administration’s anti-China campaign that was sparked
by U.S. official outrage at China’s mishandling of the coronavirus pandemic in Wuhan
in 2019. U.S. sanctions are a logical follow up of Secretary of State Mike Pompeo’s
strident call for an international coalition to oppose the Communist Party of China
regime.
President Donald Trump is taking a strong anti-China line in order to bolster his
campaign for re-election on 3 November this year. Trump is doing this in order to
distract public attention from his handling of the COVID -19 pandemic and the
deterioration of the U.S. economy. In other words, Trump is trying to blame China for
his shortcomings. Trump also argues that his opponent, Joe Biden, is soft on China.
Q3. What do you think is the next step?
ANSWER: The CCCC has played a prominent role in Xi Jinping’s Belt and Road Initiative
(BRI) as one of the major contractors for its projects. The Trump Administration will
expand its anti-China campaign to criticize Beijing for “corruption, predatory
financing, environmental destruction and other abuses” in countries that are
participating in the BRI. If Trump is returned to office, he may pressure and threaten
European and other countries with similar sanctions – visa and license restrictions – if
they continue to cooperate with the CCCC and its subsidiaries.
The Trump Administration will expect Southeast Asian countries to be grateful for U.S.
actions that enable them to access their oil and gas resources. President Trump will
expect some show of support for his anti-China policies.

Suggested citation: Carlyle A. Thayer, “South China Sea: U.S. Sanctions Chinese
Companies,” Thayer Consultancy Background Brief, August 27, 2020. All background
briefs are posted on Scribd.com (search for Thayer). To remove yourself from the
mailing list type, UNSUBSCRIBE in the Subject heading and hit the Reply key.
Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.