Exclusive: In the latest coup in China, the United States draws up a list of 89 companies with military ties

(Reuters) – The Trump administration is close to claiming 89 Chinese aerospace companies and other corporations have military ties, preventing them from purchasing a range of US goods and technology, according to a draft of the list seen by Reuters.

The list, if released, could further intensify trade tensions with Beijing and harm US companies that sell civil aviation parts and components to China, among other industries.

A spokesperson for the US Department of Commerce, who produced the list, declined to comment. The Chinese Foreign Ministry did not immediately respond to a request for comment.

Commercial Aircraft Corp of China Ltd (COMAC), which is leading Chinese efforts to compete with Boeing and Airbus, is on the list, as are Aviation Industry Corporation of China (AVIC) and 10 of its related entities.

The list is included in a draft rule that identifies Chinese and Russian companies that the US considers “military end users,” a designation which means that US suppliers must apply for licenses to sell them a wide range of items available in business.

Under the rule, applications for such licenses are more likely to be refused than granted.

US President Donald Trump has stepped up his actions against China in recent months. Ten days ago, he announced an executive order banning US investment in Chinese companies that Washington claims are owned or controlled by the Chinese military.

The pending list comes after the Commerce Department expanded the definition of a “military end user” in April.

The April rule includes not only the armed service and the national police, but any person or entity that supports or contributes to the maintenance or production of military items, even if their business is primarily non-military.

The export restriction applies to disparate items such as computer software such as word processing, scientific equipment such as digital oscilloscopes, and aircraft parts and components.

In terms of aircraft, the items include everything from brackets for the flight control boxes to the engines themselves.

News of the list comes at a sensitive time for the US aerospace industry as Boeing seeks Chinese approval of its 737 MAX after it was cleared by US regulators last week. In March 2019, China was the first nation to ground the jet after two fatalities and is already expected to wait months to lift the ban. A Boeing spokesperson declined to comment.

Washington trade attorney Kevin Wolf, a former trade official, said trade shared the draft rule with an advisory technical committee of industry representatives and should have been kept confidential.

Wolf said the rule and list could still be changed and that time was running out before it went into effect under the Trump administration as it would have to be cleared and sent to the Federal Register, the official U.S. publication for the rules, by. the mid-December.

In the draft rule seen by Reuters, the Commerce Department said that being able to control the flow of US technology to publicly traded companies is “vital to protecting US national security interests.”

But a former US official who did not want to be identified said “simply creating a list and populating it is a provocative act.” An aerospace industry source said it could spur China to react.

The inclusion of COMAC would have come as a surprise to at least one major US supplier, which had determined the company was not a military end user, the industry source said.

A list would also provide European competitors with an opening to promote their manufacturers, emphasizing that they don’t need to remove such barriers, even if the US does grant licenses, the industry source said.

General Electric Co and Honeywell International, both provide COMAC and have joint ventures with AVIC.

A GE spokesperson said its global joint ventures operate in compliance with all laws and that the company has been working to obtain licenses for military end users.

A Honeywell spokesperson declined to comment.

In addition to the 89 Chinese lists, the draft rule also designates 28 Russian entities, including Irkut, which also aims to enter Boeing’s market with its development of MC-21 airliners.

The list of 117 companies “is not exhaustive,” states the draft rule, and is considered an “initial tranche”.