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Chinese authorities allow US inspectors to check companies to remove the threat of sanctions.

Published: 2022-12-07

For all the seeming rigidity of the US and PRC foreign policies, according to the media, “on the ground” officials are ready to show more flexibility and interact more actively with opponents when it comes to the interests of the national economy. The Chinese authorities have reportedly allowed US inspectors to audit some Chinese companies, and US parliamentarians are ready to delay the imposition of new sanctions.

We are talking about checks on the involvement of individual Chinese companies in the production of dual-use semiconductor products, which can be used not only for civilian purposes. According to US Deputy Secretary of Commerce for Industry and Security Alan Estevez, after the American side announced its intention to impose sanctions against certain Chinese companies, the Chinese authorities began to allow inspectors from the United States to the relevant industrial facilities in China.

Chinese colleagues have responded to the need to carry out the relevant audit quite benevolently, as the American official explained. In November, he said, the PRC authorities approved US auditors to visit selected enterprises of the Chinese semiconductor industry. The latter went to Wuhan, Shanghai and several other cities in China. According to the source, this was achieved due to the appeals of specific Chinese companies and local authorities to the country's top leadership with requests to grant access to foreign inspectors to these facilities. Given the already difficult macroeconomic environment, the unjustified inclusion of new companies on US sanctions lists did not bode well for the Chinese economy. Recall that in October, US officials announced the need for an audit of 31 Chinese companies.

A US ministry spokesman also confirmed that he and a colleague visited the Netherlands last month for talks on consolidating efforts with foreign policy partners to limit China's technological development. It is still difficult to talk about the results of the negotiations, because for the largest suppliers of lithographic equipment in the Netherlands, China is the most important market, and it is not so easy to strike a balance between economic interests and national security. At the same time, Estevez stressed that the negotiations went in a favorable direction: "These countries or allies share our values."

At the same time, US senators, who recently called for the immediate exclusion of Chinese YMTC, SMIC and CXMT products from the list allowed for purchase by government departments of the country, changed their rhetoric to softer after consulting with industry representatives. The origin of certain components is sometimes very difficult to trace, but even if it could be reliably done now, in many cases the components of Chinese origin for US departments simply do not have alternatives available. For this reason, the authors of the legislative initiative proposed introducing appropriate restrictions with a five-year delay, relying on the ability of the supply chain to transfer the production of necessary chips to the United States or friendly countries by the time the new restrictions come into force.

Secondly, the senators proposed to limit the list of applications for which the products of listed Chinese companies will be banned. It will only apply to critical infrastructure such as telecommunications equipment, video surveillance systems and defense equipment. It turns out that in the confrontation between the US and China, both sides demonstrate the ability to compromise. Therefore, for market participants, the proposed restrictions will not have those negative consequences that loomed on the horizon initially.