‘Exit bans’ loom as trade tensions with China rise

China has unleashed draconian new rules aimed at foreign and domestic businesses that shift their supply chains out of the country. Penalties include “exit bans,” or literally holding staff hostage after seizure of assets, it was reported this week.

The mind-blowing move reflects anxiety among policymakers in the ruling Communist Party amid an exodus of manufacturers. Many have switched production across the border to Vietnam, India, and the big three in Southeast Asia, Thailand, Malaysia, and Indonesia.

But China’s clampdown has only increased fears in the United States and the European Union after Beijing weaponized its stranglehold on critical minerals last year. They are essential for the technology industry, as well as the automotive and defense sectors.

In March, US President Donald Trump issued an executive order cracking down on “false country-of-origin claims.” In short, all products “Made in USA” must be “all, or virtually all,” American-made.

“The Chinese government is in no mood to compromise, either,” China columnist Andy Browne pointed out in a Semafor newsletter earlier this week.

[It] will inevitably be deployed, based on political incentives.

Arran Hope, China Brief at The Jamestown Foundation

“In quick succession, Beijing has rolled out three separate pieces of legislation … tools to punish foreign companies operating in China that drop Chinese suppliers,” he wrote.

“In effect, international executives in [the country] are on notice that they may become hostages, depending on the actions of their headquarters,” Browne said.

Behind the scenes:

• It is against this backdrop that Trump will sit down for talks with China’s leader Xi Jinping in Beijing next month. “More, rather than less, tension” is on the agenda.
• A fraught relationship also exists in Europe over Chinese chokeholds. Beijing’s flood of state-funded high-tech exports, such as EVs, has only added to frustrations in Brussels.

Delve deeper: “A crisis in the supply of critical raw materials is no longer a distant risk. It is on our doorstep,” European Commission President Ursula von der Leyen said in a pre-summit speech to European Union lawmakers last year, as reported by Politico in October.

Big picture: Since then, China has “beefed up” its legal framework. “Now it has expanded its toolkit on paper, like Chekhov’s gun, [it] will inevitably be deployed, based on political incentives,” Arran Hope, the editor of China Brief at The Jamestown Foundation, said.

Bottom line: “In the end, although Beijing frames its measures as intended to bring stability to the international economic system, these latest regulatory innovations are likely to have the opposite effect,” he wrote in a report last week.

China Factor comment: Alarm bells are already going off in capitals across the world. This will only ignite fury with “trading partners” and hit China’s already struggling economy.