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U.S. Blacklists China’s Largest Shipping Line Amid Rising Geopolitical Tensions
The United States has recently blacklisted China’s largest shipping line, Cosco Shipping Holdings Co., along with two shipbuilders, China State Shipbuilding Corp. and China Shipbuilding Trading Co., due to alleged links with the People’s Liberation Army. This move, announced in a Federal Register filing, designates these companies as Chinese military entities as determined by the Pentagon. Although the blacklist does not impose specific penalties, it discourages U.S. firms from engaging with these companies.
This action signals heightened scrutiny of marine transport and shipbuilding as geopolitical tensions rise, particularly with Donald Trump preparing to return to the White House. China, which boasts the world’s largest shipbuilding sector, produces over half of the global merchant vessels, while the U.S. industry has significantly declined over the past generation. In the first quarter of last year, Chinese shipbuilders accounted for nearly 60% of the worldwide orderbook, highlighting the dominance that has caused unease in Washington.
The U.S. has expressed concerns over China's shipbuilding industry in Senate hearings, noting the stark disparity in production capabilities. For instance, the U.S. builds only one container ship for every 359 such vessels constructed by China. This dominance in shipbuilding and the strategic importance of shipping lines and ports have become critical areas of geopolitical competition, especially in light of the COVID-19 pandemic and its impact on global supply chains.
The latest Pentagon blacklist also includes other major Chinese companies such as Tencent Holdings Ltd., Contemporary Amperex Technology Co. Ltd., and the oil giant Cnooc Ltd. Shares of Cosco and Cnooc fell in Hong Kong following the announcement, reflecting market concerns over the implications of the blacklist.
Both Cosco and Cnooc have previously been targeted by U.S. sanctions. Cosco was sanctioned in 2019 for transporting Iranian oil, though those penalties were lifted in 2020. Cnooc, one of the earliest Chinese state-owned enterprises to face U.S. sanctions, was added to a Pentagon blacklist in 2021. Cnooc's involvement in various U.S. oil and gas projects, including onshore shale and deepwater projects in the Gulf of Mexico, may be reassessed due to rising tensions with Washington.
The blacklisting acts as a deterrent for U.S. firms to engage with the named entities and signals intensified scrutiny of China’s dominant maritime sector. This could lead to compliance and cost issues, as well as reputational damage for the blacklisted companies.
This could also impact global supply chains, as the U.S. and China are major players in the maritime industry. Rising tensions may force Chinese companies to reassess their U.S.-based assets, leading to potential disruptions in global trade and energy markets. The move underscores the growing rivalry between the world’s two largest economies, with the maritime sector emerging as a critical battleground. Despite the blacklist, Cosco has stated that its ability to conduct business in the U.S. will not be affected. The company operates over 500 ships globally and maintains that its U.S. subsidiaries are not on the blacklist. However, the designation under Section 1260H of the Defense Reauthorization Act, which targets companies that could compromise national security, could lead to compliance and cost issues, as well as reputational damage.
Contributor: Cali Benetis
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Sources:
https://www.freightwaves.com/news/ocean-carrier-cosco-blacklisted-by-us-over-china-military-ties
https://www.cnbctv18.com/world/us-blacklists-chinas-biggest-shipping-line-over-alleged-links-with-pla-19535830.htm
https://www.business-standard.com/world-news/china-s-biggest-shipping-line-cosco-added-to-us-military-blacklist-125010700363_1.html