In a Nutshell: on 7 January 2025, the US Department of Defense (DOD) released an update to its list of Chinese military companies (CMC) as mandated by Section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year 2021. Some of those names added include more key players from the Chinese maritime sector.

Although designation on the list has limited legal consequences at present, it provides a timely reminder for companies in the maritime sector with commercial relationships in China to continuously monitor the risks involved.

Background

Under Section 1260H of the NDAA for Fiscal Year 2021, the Secretary of Defense is required to publish an annual list of CMCs operating in the United States through to 31 December 2030. This list, known as the 1260H CMC List, targets Chinese entities that operate directly or indirectly in the United States and meet specific criteria established by the DOD.

An entity may be added to the 1260H CMC List if the DOD determines it is engaged in providing commercial services, manufacturing, production, or export activities, and it meets either of the following criteria:

1.    it is directly or indirectly owned, controlled by, or acting as an agent for the People’s Liberation Army or any organisation subordinate to the Central Military Commission of the Chinese Communist Party; or

2.    it is a military-civil fusion contributor, supporting the Chinese defense industrial base (the term "military-civil fusion contributor" is broadly defined in Section 1260H to include, among others, entities receiving policy guidance from certain state apparatus as well "any other entities the Secretary determines is appropriate").

The inaugural 1260H CMC List was released in June 2021, identifying more than 40 Chinese companies. It was subsequently updated in October 2022, January 2024 and now in January 2025 (but not in 2023).

Updated List

The 1260H CMC List was updated on 7 January 2025 with additional companies in the maritime sector being added. As of 7 January 2025, the following companies in the maritime industry are captured:

Aviation Industry Corporation of China Ltd. (AVIC) together with various subsidiaries, excluding AVIC Leasing which has not been listed; China Communications Construction Group (Limited) (CCCG) (together with various subsidiaries, including China Communications Construction Company Limited (CCCC)); China COSCO Shipping Corporation Limited (COSCO Shipping) together with two subsidiaries; China International Marine Containers (Group) Co., Ltd. (CIMC); China Shipbuilding Trading Co., Ltd. (CSTC); China State Shipbuilding Corporation Limited (CSSC); and CSSC Offshore & Marine Engineering (Group) Company Limited (COMEC) (together with its subsidiaries Guangzhou Wenchong Shipyard Co., Ltd. and Huacheng (Tianjin) Ship Leasing Co., Ltd., but not other yards under COMEC's control).

The full list, including those entities outside the maritime sector, and the DOD release can be found here.

Impact

A Section 1260H List designation might not carry much legal impact on its own. It imposes no direct restrictions and does function like other lists, which may prohibit certain trading activities by US persons with a listed company. However, it still carries weight. It may pose reputational risks where counterparties screen against the 1260H CMC List. In addition, some of those entities listed on the 1260H CMC List are also designated on other restricted party lists, which may entail more significant consequences. So, at the very least, it's reflective of a DOD that wishes to discourage US businesses from working with CMCs directly and, potentially, indirectly. Further, in practice, being listed may well mean that both existing and potential business partners are discouraged from further dealings with  the listed entity.

More broadly, this demonstrates the US' sharpened focus on China and raises the question what policy initiatives and legislation may follow. It is not yet clear how this will develop and manifest itself within the maritime sector. Shipowners, financiers and other players in the maritime sector are well advised to watch closely as the US and China navigate their evolving relationship during this pivotal moment.

If you have any questions, please get in touch with your contact person at EHLERMANN RINDFLEISCH GADOW or with Adam Parmenter.