As U.S.-China hostilities increase and the relationship between the two countries continues to deteriorate, U.S. companies in China may soon take a big hit as Beijing prepares to release its long-threatened "unreliable entity list"—a move that would subject named companies to investigations, market restrictions and even civil, administrative and criminal liability.

While China first mentioned the possibility of such a list more than a year ago, The Global Times, which is published by the People's Daily, the official newspaper of China's ruling Communist Party, reported last month that China is now ready to put U.S. companies on an "unreliable entity list."

The Chinese list is largely seen as retaliation for the United States expanding its own "Entity List." Beijing first announced it would establish such a list in May of 2019 in response to Huawei being placed on the U.S. Entity List, which effectively barred U.S. companies from doing business with the Chinese company. The announcement at the time raised considerable alarm among foreign companies in China, worried about survival in the world's second-biggest economy. But more than one year later, the list remains unpublished.

Tensions between the U.S. and China have significantly escalated since then. In April, the U.S. Commerce Department unveiled new rules increasing its scrutiny of technology exports to China. These were followed by greater restrictions on Chinese telecom giant Huawei's global access to chips made with U.S. technology. In late May, the administration blacklisted dozens more Chinese entities through the Entity List on national security grounds.

Then last week, U.S.-China relations fell to a new low when President Donald Trump announced that he will start stripping Hong Kong of its special trade privileges. The move came on the back of new national security legislation that Beijing is imposing on Hong Kong, bypassing the city's own legislature. In response, China has vowed to take "necessary countermeasures" against the U.S., which has been reported by Chinese state media as a reference to the unreliable entity list.

This list war—another sign of the further decoupling of China and the U.S.—will have major implications for U.S. businesses, lawyers say. If China goes ahead with its list, the accompanying measures could include launching investigations and imposing restrictions on such U.S. companies as Apple, Cisco and Qualcomm and suspending purchase of Boeing airplanes, according to the Global Times.

Kenneth Zhou, a Beijing partner at Wilmer Cutler Pickering Hale and Dorr and a member of the board of governors of the American Chamber of Commerce in China, said some of these measures will not only mean restrictions on market access, investment and licensing approvals, but also could include punishments through China's social credit system.

"It's fundamentally technology companies and companies which are really dependent on the Chinese market [that will be targeted by China's unreliable entity list]," said Lester Ross, head of Wilmer's Beijing office and chair of the China policy committee at the American Chamber of Commerce in China.

"China has already embarked upon a substantial effort … to reduce its dependence on foreign technology. So it can accelerate that movement … and exact punishment upon those companies and the country in which they're incorporated."

The Global Times report suggested that China will launch "rounds of endless investigations" on foreign firms in order to dampen investors' confidence and squeeze the firms' income in the Chinese market. According to Chinese officials, any foreign entities that cut off supplies or adopt discriminatory measures against Chinese companies for noncommercial reasons will be added to the list.

Qualcomm used to be a chip supplier to Huawei, while Cisco is considered a major rival to Huawei in the manufacturing of telecom equipment.

For many U.S. companies, the Trump administration's restrictions already limit their ability to do business with Chinese partners, and now China's retaliation promises to restrict them even more. Wilmer's Ross, who has raised concerns with Chinese authorities in his capacity as both a law firm partner and a core member of the American Chamber in China, does not foresee China changing its course.

"Their point is: look into your own country, and you'll understand why it is we're doing what we're doing," he said.

Click here to listen to the full interviews with Wilmer's Lester Ross and Kenneth Zhou in the latest episode of the China Law Podcast.