US-China Tensions Over South China Sea Rise With Missile Tests, Sanctions

US-China tensions over the South China Sea escalated on Wednesday, with Beijing firing four missiles into the waters around the same time as the Trump administration took action against Chinese companies that helped set up outposts in the disputed region.

China launched four medium-range ballistic missiles into the South China Sea on Wednesday amid broader military exercises by the People's Liberation Army, according to a U.S. defense official who asked not to be identified. The missiles landed in the sea in an area between Hainan Island and the Paracel Islands, the official said, and were fired a day after Beijing protested a flyover by a U.S. spy plane.

"As long as they're doing it in accordance with international law and norms they have every right to do so," Scott D. Conn, a U.S. navy vice admiral, told reporters on Thursday in response to a question about the missile tests. He said the U.S. is ready to respond to any threats in the region, and said if all militaries operate professionally "you can have the same ships in the same water space."

Separately on Wednesday, the U.S. announced trade and visa restrictions on 24 companies for their efforts to help China "reclaim and militarize disputed outposts" in the contested maritime area, according to a statement from the U.S. Department of Commerce. The most prominent were units of state-owned China Communications Construction Co., one of the largest builders of projects in President Xi Jinping's "Belt and Road" initiative, which saw its shares slide as much as 5.6% on Thursday in Hong Kong.

The escalating tensions come as the Trump administration is trying to push back against what the US sees as an intensifying Chinese campaign to dominate the resource-rich South China Sea and smaller nations in the region. Last month it explicitly rejected China's expansive maritime claims in the region for the first time, and sent aircraft carriers to the waters to conduct military exercises.

US Stance

President Donald Trump has made taking a tougher stance on China a key element of his re-election campaign against former Vice President Joe Biden, even as the two nations seek to sustain a "phase one" trade deal reached early this year. Asian stocks began Thursday's session mixed after a surge in technology shares earlier pushed the S&P 500 index and the Nasdaq Composite to fresh highs for a fourth consecutive day.

Just In: Chinese State Media and Leaders of CHINA want Biden to win “the U.S. Election”. If this happened (which it won't), China would own our Country, and our Record Setting Stock Markets would literally CRASH!

— Donald J. Trump (@realDonaldTrump) August 26, 2020

China conducted similar missile tests in July 2019 over contested waters and islets in the South China Sea. Greg Poling, director of the Asia Maritime Transparency Initiative and a fellow at the Center for Strategic and International Studies in Washington, said the Chinese the latest move was a measured step.

"As with most of China's foreign policy lately, it seems intended to signal strength to the domestic audience and smaller neighbors, not actually tell the U.S. anything it didn't already know," Poling said. "Beijing was careful to do it within acceptable limits -- firing into undisputed waters off the southern coast with due notice."

In announcing the measures against China Communications Construction and other companies, Commerce Secretary Wilbur Ross said the entities "played a significant role in China's provocative construction of these artificial islands and must be held accountable." Earlier in the day, Vietnam called on China to cancel its drills this week near the Paracel Islands, saying they violated the country's sovereignty.

"The United States, China's neighbors, and the international community have rebuked the CCP's sovereignty claims to the South China Sea and have condemned the building of artificial islands for the Chinese military," Ross said, using an abbreviation for the Chinese Communist party.

In a related statement, Secretary of State Michael Pompeo said the U.S. would impose visa restrictions on Chinese individuals "responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of" South China Sea land.

A senior State Department official, speaking to reporters on customary condition of anonymity Wednesday, said the visa restrictions were the "mere start" of what could be more U.S. action to punish China over its reclamation work in the South China Sea. The official encouraged other countries to take similar measures against the people who were targeted to make it even harder for them to conduct business abroad.

The U.S. moves should be understood in China as politically motivated due to the looming November presidential election, said Wang Huiyao, an adviser to China's cabinet and founder of the Center for China and Globalization, noting that businesses on both sides are desperate to keep working together.

"China doesn't need to respond to that," he said.

China Communications Construction is involved in projects around the world, from Sri Lanka to Pakistan to Italy. The immediate impact on the company's bottom line remains unclear, Eurasia Group said in a note.

"China's immediate response will be strident but measured," the note said. "In this case, the Entity List is a less potent tool than Treasury sanctions, but China could still respond with retaliatory sanctions against U.S. individuals in roughly comparable positions."