China expands anti-sanctions toolkit, raising risks for foreign firms
China has adopted two new decrees strengthening its ability to retaliate against foreign sanctions, increasing regulatory complexity and legal risks for multinational companies operating in the country.
Since March, China has passed two new regulations – State Council Decrees No. 834 and 835 – that expand its ability to retaliate against foreign entities deemed to have threatened its supply chain security or enforced sanctions with “improper extraterritorial jurisdiction.” A third draft law, still in development, would allow Chinese prosecutors to bring cases against foreign organizations and individuals whose “unlawful acts harm the country’s national interests or social public interest,” according to state media.
James Hsiao, a Hong Kong partner with law firm White & Case, said firms are concerned about complying with conflicting rules. “A company may be required under US or EU sanctions rules to restrict dealings with a counterparty, while also needing to consider whether taking that action could create risk under [Chinese] countermeasures,” he told Al Jazeera.
Under Decree No. 835, companies can face fines, visa cancellations, asset freezes, investment restrictions, and curbs on imports or exports of goods if they implement measures with “improper extraterritorial jurisdiction.” Decree No. 834 penalizes actions that “disrupt, undermine or discriminate against China’s industrial or supply chains.”
The changes are likely to complicate firms’ efforts to adhere to Western sanctions and assess supply chain risks, exposing them to “increased scrutiny where business decisions or compliance measures could be perceived as implementing foreign discriminatory or otherwise restrictive measures,” according to US law firm Paul Hastings.
Hanscom Smith, a senior fellow at Yale Jackson School of Global Affairs, said the expanded regulations should be seen as a sign of things to come. “In a ‘rule by law’ system like China’s, regulations are a form of signaling and won’t necessarily be applied uniformly. Regardless, the new measures increase the regulatory complexity for foreign companies doing business in China,” he said.
Beijing-based advisory firm Trivium China noted that foreign companies will be “increasingly caught between an American rock and a Chinese hard place.”
Since introducing its “Unreliable Entities List” in 2020, China has built up its arsenal of measures to counter foreign sanctions and export controls imposed by Western capitals over claimed national security threats and alleged human rights abuses.
In May, Beijing for the first time invoked its 2021 “blocking law” to bar Chinese citizens and companies from complying with US sanctions on Chinese “teapot” oil refineries for buying Iranian oil. That same month, the Ministry of Justice used Decree No. 835 to determine that an EU investigation into Chinese security equipment company Nuctech was a case of “improper extraterritorial jurisdiction,” barring any organization or individual from assisting in the probe.
