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September 1, 2020

Chinese Firm Involved In Sangley Point International Airport Project Cited For Corruption, Aside From SCS Island-Building

Chinese Firm Involved In Sangley Point International Airport Project Cited For Corruption, Aside From SCS Island-Building Handout photo shows ships carrying construction materials docked at the newly built beach ramp on Pag-asa Island in the West Philippine Sea on June 9, 2020. AP/Department of National Defense

In its move to impose restrictions on Chinese government corporations implicated in reclamation and militarization activities in the disputed South China Sea, the United States has singled out China Communications Construction Company (CCCC) – likely hampering its ability to use American technology in the Sangley Point International Airport project awarded by the Cavite provincial government.

Under the administration of President Duterte, the Philippine government has dealt with CCCC despite its tainted record, drawing criticism from national security analysts and officials, including retired Navy chief Alexander Pama.

The United States Department of Commerce and Department of State said CCCC, five subsidiaries and 18 other Chinese companies were placed under the so-called “Entity List” of the Bureau of Industry and Security (BIS) in relation to “enabling the People’s Republic of China to reclaim and militarize disputed outposts in the South China Sea.”

Companies placed under the Entity List would be unable to purchase American technology and other products without first obtaining special permission – which is denied more often than not.

A senior State Department official on Aug. 26 called on “governments around the world to assess risk and reconsider business deals with the sort of predatory Chinese state-owned enterprises that we’ve identified here.”

“Beijing’s state-owned enterprises have played a key role in building and militarizing these outposts. The US firmly opposes these efforts, and we are taking actions to make clear that further militarization and further coercion is unacceptable and entirely contrary to the interests of China’s neighbors and the United States and the world,” the official said.

But presidential spokesman Harry Roque on Aug. 28 urged Washington and Beijing to “resolve any and all issues between them amicably and peacefully” as he maintained that President Duterte’s “main consideration is what is best for the country’s Build, Build, Build program.”

In his statement regarding the Sangley Point International Airport project, Roque did not say whether Manila would heed the call to avoid transacting with CCCC and other Chinese state firms. He only invoked the “independent foreign policy course” charted by Duterte.

“This outcome will help further enhance greater stability and security in the region. This is what is needed for the mutual benefit and interest of everyone in our region,” Roque said.

The New York Times noted that it was the first time that the administration of US President Donald Trump used the Entity List in relation to China’s encroachment in the South China Sea, although it had sanctioned dozens of Chinese companies previously over national security concerns related to advanced technology and alleged human rights violations against Muslims in the Xinjiang autonomous region.

The US said China “must not be allowed to use CCCC and other state-owned enterprises as weapons to impose an expansionist agenda.” It also said it would act “until we see Beijing discontinue its coercive behavior in the South China Sea.”

What is the effect of being placed under the Entity List?

Companies in the Entity List face difficulties in transacting with persons deemed to be working against US interests, because of the imposition of additional license requirements and the limitation of most license exceptions.

American companies may be discouraged from entering into “transactions of any nature” with those placed under the Entity List. These transactions will carry a “red flag” and trigger a recommendation to “proceed with caution.”

In an Aug. 26 statement, the Commerce Department explained that the Entity List enables the BIS to “restrict the export, re-export, and transfer (in-country) of items subject to the Export Administration Regulations” to certain persons.

Such persons – individuals, organizations or companies – are “reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States.”

The categories of items restricted under the Export Administration Regulations of the US, covering a wide range of products that even include commodities, are as follows:

  • Nuclear materials, facilities and equipment
  • Chemicals, microorganisms and toxins
  • Materials processing
  • Electronics design development and production
  • Computers
  • Telecommunications and information security
  • Sensors and lasers
  • Navigation and avionics
  • Marine
  • Aerospace and propulsion

In an Aug. 26 special briefing via teleconference,  a senior Commerce official said the placement of the companies under the Entity List took effect Aug. 27. (The State Department asked the media to refer to the speakers only as senior officials and did not identify either its official or that of the Commerce Department.)

The senior Commerce official said the listed companies seeking to transfer “anything leaving the United States as well as certain items that are made abroad” would have to secure a special license from the Commerce Department, which will undertake a review together with the state, defense and energy departments.

“As a practical matter, the licensing policy is presumption of denial for any such proposed exports, re-exports or in-country transfers,” the official said.

“Typically, many companies tend to stay away from doing business with parties on the Entity List, either just for reputational purposes or to further ensure that they don’t run afoul of the Export Administration Regulations,” the official added.

Even though American companies may be discouraged from dealing with the listed Chinese firms, the senior Commerce official acknowledged that transactions generally involve less sophisticated, “lower-level items” that “are likely available from other sources” in other countries.

“There’s been a relatively small amount – $5 million roughly, total – of US exports to these parties,” the official noted.

Why is CCCC so controversial?

CCCC has been described as China’s “largest provider of transportation infrastructure projects by contract value” by China Daily, an English-language newspaper owned by the Publicity Department of the Communist Party of China.

Washington-based think tank RWR Advisory Group similarly described the company as “the biggest construction firm working on the Belt and Road Initiative” – the economic scheme through which Beijing has aggressively invested in road and rail links through the interior of the Eurasian landmass, as well as ports along the Indian and Pacific Oceans.

The CCCC subsidiaries included in the Entity List were China Communications Construction Company Dredging Group Co. Ltd., China Communications Construction Co. Tianjin Waterway Bureau, China Communications Construction Co. Shanghai Waterway Bureau, China Communications Construction Co. Guangzhou Waterway Bureau, and China Communications Construction Co. Second Navigation Engineering Bureau.

RWR chief executive officer Roger Robinson noted CCCC’s “extensive footprint” in US capital markets. “Scores of millions of average American investors are unwittingly helping fund CCCC and other Chinese state-owned giants through their stock and bond index funds, pension funds and other investment vehicles that Wall Street fund managers and others are mainlining into their investment portfolios,” he said.

CCCC Dredging had especially come under scrutiny as defense-intelligence provider IHS Jane’s Defence Weekly reported that surveillance photos in 2015 showed one of its ships helping build China’s artificial islands in the Spratlys.

A CCCC Dredging affiliate, CCCC Tianjin Dredging Co. Ltd., also operated a suction hopper dredger in Panganiban (Mischief) Reef off Palawan, over which the Philippines has been awarded sovereign rights by the Permanent Court of Arbitration in The Hague.

On Feb. 15 this year, the Cavite provincial government issued a notice of award for the $10-billion Sangley airport project to a joint venture formed by CCCC (which holds a 60-percent stake) with business tycoon Lucio Tan’s MacroAsia Corp. (which holds the remaining 40 percent).

The CCCC-MacroAsia joint venture was the sole bidder for the 1,500-hectare airport hub, which aims to take some flights out of Manila’s Ninoy Aquino International Airport. The Sangley property is owned by the Department of Transportation and the Armed Forces of the Philippines. The airport is near the Danilo Atienza Air Base and Naval Base Cavite, the latter of which was formerly operated by the US Navy.

Retired Navy chief Pama, in a Facebook post on Dec. 19 last year, highlighted the “clear and present danger” posed by Chinese participation in an airport project so close to Air Force and Navy bases and even the National Capital Region itself.

He also mentioned the presence of a massive Philippine online gaming operation complex nearby that employs mostly Chinese personnel and caters to Chinese clients who are otherwise banned from gambling in their home country.

“On the basis of the same security and defense issues that we earlier raised, resulting [in] the aborted purchase of the Hanjin Subic shipyard by a Chinese company, this again is highly objectionable and even worse!” Pama said. “Won’t we really ever learn? Is it too late to rectify this?”

Following Washington’s actions, Foreign Affairs Secretary Teodoro Locsin Jr. and Cavite Gov. Juanito Victor Remulla, in separate television interviews, departed from Roque’s neutral stance.

Locsin categorically said he “would strongly recommend terminating the relationship with that company,” although he admitted that he was not aware of the government’s existing dealings. Remulla, for his part, announced “we will terminate the agreements immediately” if the President and the Department of National Defense declare “that it’s a security risk to enter into an agreement with them.”

Pama, reacting to Remulla’s use of the word “if” to describe the security risks, exclaimed on Aug. 28: “It is!!! Are you telling us you guys did not do due diligence on who you are dealing with before entering into an agreement?

Sen. Risa Hontiveros demanded the cancellation of some P100 billion in contracts, saying it was “disturbing that the government has engaged with Chinese companies involved in the destruction of our territories.” Meanwhile, Senators Panfilo Lacson and Francis Tolentino supported Locsin’s statement.

The CCCC affiliates’ involvement in the South China Sea reclamation activities was not the only issue hurled against it.

 From 2011 to 2017, the World Bank debarred the Chinese state firm and its subsidiaries from participating in WB road and bridge projects. The World Bank cited the fraudulent practices of CCCC predecessor China Road and Bridge Corporation (CRBC) that tainted Phase 1 of the Philippines National Roads Improvement and Management Project.

 An internal investigation by the WB showed that CRBC colluded with several other local and international companies in the bidding for the said project.

 The senior US State Department official also cited questionable practices in other countries, such as CCCC’s role in Chinese plans to blast and dredge the Mekong River at the expense of downstream communities in neighboring Southeast Asian countries, as well as corruption, bribery and labor abuse scandals and quality issues hounding projects in Malaysia, Bangladesh, Sri Lanka and Kenya.

 “In 2009, CCCC was blacklisted by the World Bank for fraudulent bidding practices on a highway contract in the Philippines. In Malaysia, we’ve seen over the years major controversy over CCCC’s rail projects and corruption allegations and suspicions, and a very prominent renegotiation of that CCCC Belt and Road arrangement in the last few years. In Bangladesh, the CCCC subsidiary China Harbor Engineering Corp. was blacklisted from projects after bribing an official, according to the Bangladesh government,” the official said.

 “Also in Bangladesh court nine years ago, the China Harbor Engineering Co. was found to have paid bribes to the son of a Bangladeshi prime minister who was later sentenced to prison. In Sri Lanka, there have been longstanding accusations of corruption and bribery involving China Harbor Engineering Corp. and the Hambantota Port project, which is very well known in the Belt and Road story,” the official added.

 The official further said that in Kenya, “we’ve seen many illustrations of unfortunate practices by the CCCC subsidiary China Road and Bridge Corp. to include the guilty plea of China Road and Bridge officials for bribery and a range of other concerns about this major railway project, to include labor abuse concerns, basic quality and viability concerns, as well as others. These are companies that are acting in this fashion and also doing so in very close cooperation with the Chinese military, as seen in the South China Sea, as seen in the Djibouti port and elsewhere.”

 Which are the other companies included in the Entity List?

 Other Chinese companies listed by the BIS for similar reasons related to the South China Sea dispute were the following:

  •  Beijing Huanjia Telecommunication Co., Ltd.
  •  Changzhou Guoguang Data Communications Co., Ltd.
  •  China Electronics Technology Group Corp., 7th Research Institute (CETC-7)
  •  Guangzhou Hongyu Technology Co., Ltd., (a subordinate institute of CETC-7)
  •  Guangzhou Tongguang Communication Technology Co., Ltd. (a subordinate institute of CETC-7)
  •  China Electronics Technology Group Corp., 30th Research Institute (CETC-30)
  • China Shipbuilding Group, 722nd Research Institute
  • Chongxin Bada Technology Development Co., Ltd.
  • Guangzhou Guangyou Communications Equipment Co., Ltd.
  • Guangzhou Haige Communication Group Co., Ltd.
  • Guilin Changhai Development Co., Ltd.
  • Hubei Guangxing Communications Technology Co., Ltd.
  • Shaanxi Changling Electronic Technology Co., Ltd.
  • Shanghai Cable Offshore Engineering Co., Ltd.
  • Telixin Electronics Technology Co., Ltd.
  • Tianjin Broadcasting Equipment Co., Ltd.
  • Tianjin 764 Avionics Technology Co., Ltd.
  • Tianjin 764 Communication and Navigation Technology Co., Ltd.
  • Wuhan Mailite Communication Co., Ltd.

Besides placing the 24 Chinese companies under the Entity List, the State Department also imposed visa restrictions on unnamed officials and business executives  “responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of disputed outposts in the South China Sea, or the (People’s Republic of China’s) use of coercion against Southeast Asian claimants to inhibit their access to offshore resources.”

The individuals are now barred from entering the US and their immediate family members may be subject to visa restrictions as well.

Read more: US Backs Philippine Claims In South China Sea Anew; Sanctions Chinese Officials Behind SCS Island-Building

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