June 3, 2019 / 5:50 AM / 3 months ago

Breakingviews - Beijing’s threats may soon come in bigger packages

A FedEx Express plane is seen at a maintenance base of Guangzhou Aircraft Maintenance Engineering Company Limited (GAMECO) at the airport in Guangzhou, Guangdong province, China August 16, 2018. Picture taken August 16, 2018. Feng Zhoufeng/Southern Metropolis Daily via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.

HONG KONG (Reuters Breakingviews) - Beijing’s threats may soon come in bigger packages. Officials are drafting a blacklist for badly behaved foreign companies. It’s the latest warning signal, as China tries to respond to U.S. blows without escalating an increasingly bitter trade dispute. That’s getting harder, and a new FedEx probe raises the stakes.

China’s Commerce Ministry said on Friday that it would create a catalogue of “unreliable entities”, to name foreign companies, organisations and individuals that harm the rights and interests of local firms. It’s not exactly clear what that entails, but the register does appear to be a direct response to the U.S. attack on telecoms giant Huawei, via the Commerce Department’s own entity list.

Officials in Beijing also arranged an unusual public reiteration of their trade stance, with a policy paper and weekend press conference. They blamed the U.S. team for a recent breakdown in talks, while also emphasising a desire for cooperation and willingness to talk.

The timing may be coincidental, but it neatly underscores China’s predicament. Its approach to the trade conflict has so far seemed ripped from the pages of a game-theory textbook: consistent, mostly proportional, tit-for-tat replies to U.S. actions. It imposes costs on perceived American aggression, while avoiding escalation.

Yet the ferocity of the U.S. assault on Huawei seems to have left China struggling for an appropriate comeback. It wants to get the company off the blacklist and to keep others from facing a similar fate. But it also needs to keep things from spiraling, especially ahead of a G20 summit meeting later this month. The upshot is the combination of ominous statements, like those around rare-earth exports, alongside signals that it is not looking for a full-scale confrontation. This balancing act will prove harder as time goes on: threats without action soon become meaningless.

A new probe into FedEx heightens the tension. Officials are investigating whether the U.S. parcel delivery service harmed the rights of its clients, after Huawei said two shipments destined for company addresses in Asia were re-routed to the United States. FedEx says it was an error. It is becoming increasingly hard to unpick legitimate complaints from the widening spat. That will make reversing any actions far tougher, too.

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