Lockheed Martin photo:VCG

China on Thursday added two major US defense contractors Lockheed Martin Corp and Raytheon Missiles & Defense to its unreliable entities list and imposed several sanctions, including a ban on trade activities related to China and huge fines, against the firms for participating in arms sales to the island of Taiwan. 

This likely marks the first time that specific companies have been added to the country's unreliable entities list, which has been in the making for about three years, demonstrating China's resolve to punish foreign entities that undermine China's national sovereignty, security and development interests, Chinese analysts noted. 

In a statement on Thursday, the Ministry of Commerce (MOFCOM) said that it has decided to put Lockheed Martin and Raytheon, which participated in arms sales to China's Taiwan region, on the unreliable entities list, effective immediately. 

The ministry also imposed five measures against the two firms, including banning them from conducting import and export activities related to China and from adding new investments in China. Senior executives of the two companies are also banned from entering China, while work and residency permits for senior executives will be revoked or not granted, according to MOFCOM. 

Most notably, MOFCOM imposed separate fines on the two companies that are twice the amount of their arms sales to Taiwan island. They are to pay the fines within 15 days or face higher fines, the statement reads. 

In February 2022, the US government approved a possible $100 million sale of military equipment and services to Taiwan, and the main contractors would be Lockheed Martin and Raytheon, according to Reuters. 

After the US' move in February 2022, China's Foreign Ministry announced countermeasures against the two firms with relevant stipulations in China's Anti-Foreign Sanctions Law, another mechanism for punishing foreign entities that harms China's sovereignty and security interests.

"The unreliable entities list mechanism was launched a long time ago, but this should be the first time that specific companies have been included," which shows, first and foremost, that the mechanism has started to be implemented, Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing, told the Global Times on Thursday.

China first announced plans to establish the unreliable entities list in March 2019, as the US government waged a trade war against China and cracked down on Chinese firms with its so-called Entity List. In September 2020, regulations on the list were released and took effect. According to the regulations, the list targets foreign entities that are involved in activities that endanger China's national sovereignty, security or development interests and take discriminatory measures against Chinese entities and individuals. 

"Not only have these two companies not been restrained in recent years, but they have been vigorously agitating for arms sales to Taiwan, seriously challenging the red line regarding the one-China principle," Xin Qiang, deputy director of the Center for American Studies at Fudan University, told the Global Times on Thursday. 

On Wednesday, the Chinese Foreign Ministry vowed to impose countermeasures against US entities that undermine China's sovereignty and security after Washington shot down a Chinese civilian airship by force and imposed sanctions against several Chinese entities.

Analysts noted that while the real effects of the sanctions imposed on Lockheed Martin and Raytheon remain to be seen, the move on Thursday will still hit the two US companies hard in various ways, even though they have a limited presence in the Chinese market. 

"This will affect their international reputation and impact their performance in the capital market," Gao said, adding that other companies related to the two defense contractors could also be affected. 

Also, the two companies could face serious risk if their rare-earth supplies are affected by the sanctions, according to Wu Chenhui, an independent industry analyst who follows the rare-earth industry.

Wu told the Global Times on Thursday that Lockheed Martin, now on the entity list, may have to source its rare-earth supply, especially that of heavy rare-earth elements, from elsewhere.

Given China's dominant position in global rare-earth supply and that substitutes may not be found in time, production of the company's F35 jet and many other high-tech weapon systems may face a temporary slowdown or suspension.

If China decides to expand the range of its ban to components produced by other countries that contain Chinese-made rare-earth elements, the depth and scope of the counterstrike will be deeper and wider, Wu noted. 

Moreover, Thursday's sanctions against Lockheed Martin and Raytheon offers a strong deterrence to other foreign entities that seek to undermine China's national sovereignty, security and development interests, Xin said.